Walgreens has decided it will not relocate its corporate headquarters from the United States to Switzerland by acquiring a Swiss drugstore chain. The company would have saved money in the move, but, as a storefront retailer, risked alienating customers.
Walgreens deserves credit for staying put, but it is an outlier against the recent trend of corporations seeking competitive advantage by headquartering outside the U.S. Other mammoth companies - including many pharmaceuticals - have exploited similar opportunities abroad to avoid America's cumbersome corporate tax code.
The Illinois-based Walgreens could have saved up to one-third of its total tax bill by moving the headquarters to Switzerland.
Don't expect other companies to bypass those savings. In a global economy, counting on the better nature of corporations is no substitute for rational tax policy.
Companies that purport to be U.S. based should pay U.S. taxes, of course. But those taxes should be fair. Instead of weighing measures to punish corporations that take advantage of these so-called tax inversions, the better approach is to finally overhaul an uncompetitive corporate tax code.
President Barack Obama came into office touting the need to reform corporate taxes, and there's little disagreement in Congress. Retiring U.S. Rep. Dave Camp has even done the legwork by creating a new, feasible blueprint for reform.
And yet it hasn't happened. Meanwhile, corporations are starting to give up and pack up - at least on paper.
Any new code must lower the 35 percent corporate tax rate, which is the highest in the industrialized world. Companies can find rates that are half that or lower in countries such as Ireland and England.
The U.S. must also stop taxing foreign profits. This is one of only six OECD countries that taxes income earned outside its borders. If a company has already paid taxes on income earned in another nation, it should not be required to pay an additional U.S. tax on that same profit. That provides a disincentive for corporations to bring that money back.
Another helpful step would be making research and development tax credits permanent, to encourage further production and technological advances.
Instead of attacking the flaws in the tax code, President Obama has shifted to trying to stop corporations from relocating with punitive measures. The Treasury Department is exploring what the president can due through administrative action to halt tax inversions.
The IRS has targeted Delphi, which moved its headquarters to the U.K. after being born and based in Michigan, arguing it must pay taxes as a domestic corporation.
But trapping companies in the U.S., forcing them to operate under an onerous and costly tax code, ignores the reason corporations exist in the first place - to make money for shareholders and products for customers.
They have a fiduciary responsibility to operate as efficiently as possible. The U.S. tax code works against that objective.
The wave of tax inversions should be a wake-up call for the president and Congress. Some corporations will follow Walgreens lead and place citizenship over profits. But they shouldn't have to. Washington should keep them home by lifting the tax burden.
- The Detroit News