WOONSOCKET, R.I. (WPRI) – Drugstore giant CVS Caremark Corp., Rhode Island’s largest for-profit company, confirmed Thursday that it has examined moving its corporate headquarters overseas to avoid the nation’s high corporate tax rate.
“We have an obligation to our employees, our shareholders and our customers to understand all of our potential options,” Carolyn Castel, CVS Caremark’s vice president of corporate communications, told WPRI.com in an email.
“That said, we are an American company, and we want to stay where we’ve been for more than 50 years,” she continued. “It is imperative that Congress removes the perverse incentives that currently reward corporate inversions, and we want to work with them to find a solution.”
Castel’s statement followed comments made to The Washington Post by U.S. Sen. Chuck Schumer, who told the newspaper that CVS CEO Larry Merlo told him during a meeting that the company “might be forced” to shift its headquarters offshore for competitive reasons if Congress doesn’t overhaul the tax code.
The phenomenon of American companies changing home countries by merging with overseas firms – known as a tax “inversion” – has been much in the news in recent weeks after CVS archrival Walgreen Co. said it was planning to make the move to save on taxes. Walgreen reversed its decision on Wednesday after criticism from President Obama and others.
America’s official corporate tax rate is 35%, but the code is riddled with loopholes that allow some companies to reduce their tax bills. CVS, however, isn’t one of them: in 2011, a former U.S. Treasury Department official told Congress he estimated CVS’s effective tax rate at 38.8% for the previous three years.
In the email, Castel downplayed Merlo’s conversation with Schumer, saying CVS executives have been talking with members of Congress and Obama administration officials “for some time” about what the company sees as the “urgent” need for “corporate tax reform that includes a significant rate reduction.”
“Our main objective remains broad corporate tax reform that includes a significant rate reduction,” Castel told WPRI.com. “However, in recent discussions, we have highlighted that if the current wave of tax inversions continues, the opportunity to achieve truly effective corporate tax reform could be negatively impacted.”
CVS, which was founded in Massachusetts in 1963 and merged with pharmacy-benefit manager Caremark Rx Inc. in 2007, has grown to be one of the largest companies in the United States. Its total revenue in 2013 was nearly $127 billion, putting it at No. 12 on the latest Fortune 500 list of America’s largest companies by sales.
It’s unclear what a decision to shift headquarters offshore would mean for the more than 7,000 workers that CVS Caremark currently employs in Rhode Island. Castel declined to answer a question about the local impact of such a move.
U.S. Sen. Jack Reed, D-R.I., is among those who criticized Walgreen for considering an inversion. “The average American is right to be deeply upset when U.S. businesses go shopping for new citizenship at tax season,” he said Wednesday.
Reed and two other senators, Elizabeth Warren of Massachusetts and Dick Durbin of Illinois, earlier this week called on President Obama to use his executive powers “to reduce or eliminate tax breaks for companies that shift their headquarters overseas to avoid paying U.S. taxes.”