Walgreens CEO Favors Trio of Tax Havens for $10 Billion Fortune

(Bloomberg) -- Over decades of dealmaking, Stefano Pessina turned his family’s Italian wholesale pharmaceutical business into the largest retail pharmacy in the U.S. and Europe.

Now filings show how a trio of tax havens support the significant wealth the chief executive officer of Walgreens Boots Alliance Inc. has amassed in that time.

Walgreens CEO Favors Trio of Tax Havens for $10 Billion Fortune

Pessina, who lives in Monaco, dissolved a Luxembourg company that controlled his stake in Walgreens and replaced it with a new one. He controls that entity through another based in the Cayman Islands, according to filings last month.

He owns more than 16% of the Deerfield, Illinois-based retail pharmacy, which makes up the bulk of his $10.2 billion fortune, according to the Bloomberg Billionaires Index.

“This is a perfect example of someone doing everything they can to use the tax haven regime to protect their wealth,” said Richard Murphy, professor of international political economy at City University of London.

Pessina declined to comment through a Walgreens spokesperson.

Complex Lengths

Pessina’s holding company in the Cayman Islands was set up more than a decade ago, but the extent of the structure has only recently become clearer.

The disclosures illustrate the lengths many of the world’s richest people go to manage and protect their wealth. Two years ago, four Chinese tycoons transferred more than $17 billion into family trusts with the ownership structures involving various Caribbean jurisdictions. Tina Green, who lives in Monaco and is married to U.K. retailer Philip Green, received a 1.2 billion pound ($1.5 billion) dividend from the couple’s holding company that went untaxed.

Walgreens CEO Favors Trio of Tax Havens for $10 Billion Fortune

Pessina, 78, is a citizen and long-term resident of Monaco, where inhabitants don’t pay annual property, capital gains or council taxes. It’s a similar situation in the Cayman Islands, which has no direct tax regime. Last year, the International Monetary Fund singled out Luxembourg as a global center for “empty corporate shells” because of the amount of foreign investment.

There’s nothing empty about Pessina’s Luxembourg companies, with the one holding his stake reporting assets of more than 6 billion euros ($6.5 billion) at the end of 2018.

Wealthy individuals often have legitimate reasons for using offshore tax havens. U.S. hedge funds and other money managers pool assets into Cayman Islands master funds to reduce financial and administrative costs. They can also offer protection against unstable political regimes in investors’ home countries.

Tax Haven

On the flip side, the lack of transparency has made some of these jurisdictions accommodating places for kleptocrats, drug traffickers and money launderers to stash ill-gotten gains. This week, the European Union added the Cayman Islands to its tax haven blacklist, leaving the British overseas territory facing reputational damage and higher scrutiny over financial transactions.

The Cayman Islands government said Tuesday it has begun the process to be removed from the list as early as this year. Pessina’s holding company -- Alliance Participations Ltd. -- falls outside the scope of the EU’s issue with the Cayman Islands, which focuses on investment funds in the territory.

Other nations on the EU blacklist include Panama and the U.S. Virgin Islands, where the late financier and sex offender Jeffrey Epstein owned an island.

Pessina is the largest shareholder in Walgreens and has received more than $1.5 billion in dividends through his career, according to Bloomberg’s wealth index. He’s one of Monaco’s richest residents and has hobnobbed over the years with royalty and fellow billionaires visiting the city-state.

Cayman Trust

Pessina’s Monaco citizenship lessens his need to focus on taxes, but there are still potential perks to his offshore set-up. Luxembourg has generous exemptions for the proceeds of liquidated companies, while the Cayman Islands has no withholding tax on dividends. Pessina’s native Italy applies tax rates of as much as 26% for such windfalls, according to accounting firm KPMG.

Alliance Participations, established in 2006, has only been mentioned previously in a handful of filings unrelated to Pessina’s holdings. Filings last decade also disclose a trust affiliated with Pessina in the Cayman Islands, where his long-term partner and Walgreens co-Chief Operating Officer Ornella Barra has a separate holding company.

Pessina previously ran Alliance Boots, which he acquired with KKR & Co. in 2007. The transaction came at the height of the buyout boom and underscored the difficulty of financing jumbo take-private deals, as banks struggled to find buyers for the loans to pay for the transaction.

More recently, Walgreens was approached by KKR about a potential deal to take the company private in what would be the largest leveraged buyout in history, Bloomberg reported in November. Pessina and the company have declined to comment on any talks.

©2020 Bloomberg L.P.

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