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Customer response to tax inversion plans could cost more than taxes saved

Demonstrators protest against the possibility of Walgreens moving their corporate headquarters overseas outside a Walgreens store on July 24, 2014 in Chicago, Illinois. Walgreens had considered moving its headquarters to Europe but later stopped the idea.
Demonstrators protest against the possibility of Walgreens moving their corporate headquarters overseas outside a Walgreens store on July 24, 2014 in Chicago, Illinois. Walgreens had considered moving its headquarters to Europe but later stopped the idea.Photo by Scott Olson/Getty Images

There is a lot of conversation in the United States about companies that are packing up and moving their corporate office to lower taxing nations. Known as tax inversion, a company can lower the amount it pays in tax to the United States simply by having its corporate mailing address in another country.

Walgreens received a tremendous amount of publicity when they announced a possible move to Switzerland. Wall Street investors loved the idea because the profit potential was significant enough to reinvest in the company or to spread profits across investors with a dividend distribution. Despite the love shown by investors, a consumer outrage began that caused the company to reconsider their strategy. The day they announced their reconsideration, their stock price plunged as investors showed their disapproval.

Opponents of tax inversion claim it is very unpatriotic as corporations need to pay "their fair share" of the tax burden. Those who support corporate relocations point out that by paying lower taxes the company will have more money to reinvest in itself thereby becoming a stronger company, more competitive and able to create more jobs.

Companies need to consider the impact of announcing such a move could occur with the potential backlash from its customers. Any tax savings could quickly offset the tax savings and could be long lasting. It is unclear if customers will quickly forgive Walgreens and reward their change of heart with loyal business.

©2014 Max Impact, used with permission.

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