It is no secret that many multinational companies and high-net-worth individuals use tax havens to hide their funds and avoid paying taxes on profits and assets. Recently, the Walgreens CEO has come under fire for holding the majority of his $10-billion fortune in three tax havens.
A Quick Overview
Stefano Pessina is the CEO of Walgreens Boots Alliance Inc. He lives in Monaco and owns at least 16 percent of Walgreens, which is based in Deerfield, Illinois. This ownership accounts for most of his fortune of $10.2 billion.
Pessina previously used a Luxembourg company to control his Walgreens stake. Recently, he dissolved this company and swapped it for a new one. Filings from January 2020 indicate that Pessina controls this new Luxembourg company via an entity that is in the Cayman Islands.
A Closer Look at the Complex Set Up
The relevant Cayman Islands holding company has been in existence for at least a decade, although experts are not fully aware of its structure and complexity until more recently. Pessina is a long-term resident and citizen of Monaco, a country that does not charge capital gains, council, or annual property taxes. The Cayman Islands do not have a direct tax regime, either.
At the end of 2018, the Luxembourg company that Pessina currently uses to hold his Walgreens stake reported assets of over six billion euros, which is more than $6.5 billion.
According to the Bloomberg wealth index, Pessina has earned more than $1.5 billion of dividends during his career as the largest Walgreens shareholder.
Even with his lack of taxation as a Monaco citizen, Pessina’s off-shore setup provides him with some tax perks. For perspective, Italy is Pessina’s native country, and it charges up to 26 percent for windfalls like liquidated companies and dividends. By contrast, Luxembourg has exemptions for the former, and the Cayman Islands does not withhold taxes on the latter.
Pessina established Alliance Participations in 2006, and it has only been mentioned in filings that do not relate to the holdings of Pessina. Last decade’s filings also indicate a trust linked to Pessina within the Cayman Islands. Previously, Pessina ran Alliance Boots, acquiring it in 2007 with KKR & Co. This was during the buyout boom, showcasing how hard it was to finance take-private deals. KKR recently approached Walgreens with a deal that would bring the company private. Although Pessina and those involved have not commented on the potential deal, it would be the biggest leveraged buyout ever in history if it occurs.
Pessina Is Far From Alone
Pessina is far from the only high-net-worth individual to use tax havens as a way to get around paying taxes on earnings. Tina Green is the wife of Philip Green, a U.K. retailer, and lives in Monaco. She received a dividend from the Green’s holding company worth 1.2 billion pounds or $1.5 billion, and it was not taxed. Going back two years, four Chinese tycoons carefully transferred an amount of more than $17 billion into their family trusts that used multiple Caribbean jurisdictions in their ownership structures.
The debate regarding tax havens continues as those who take advantage of them follow the laws to the letter, at least in most situations. There are also arguments in favor of legitimate uses of tax havens, such as money managers using the Cayman Islands as a way to reduce administrative and financial costs.
At the same time, these jurisdictions are known for having poor transparency, and critics argue that they take valuable taxes away from various countries. Critics also say that this lack of transparency can lead to tax havens appealing to those who engage in drug trafficking and money laundering.
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