USA Tops International Tax Haven List, Thanks To Delaware

The Government Accountability Office likes to point its finger at Luxembourg and the Cayman Islands for sheltering tax cheats. But according to the U.K.-based Tax Justice Network, the United States is the biggest tax shelter of 'em all, thanks to the great state of Delaware.

Delaware, says the Tax Justice Network, is "the most secretive financial jurisdiction in the world." That's based on an analysis of 60 financial jurisdictions according to level of secrecy and cooperation with foreign tax authorities.

Luxembourg comes in second, followed by the Switzerland, the Cayman Islands, and the United Kingdom.

Here are some fun facts about Delaware, per TJN's release:

* According to the Delaware Secretary of State's office their operating budget was $12 million in 2007 and they made $24 million in the fees for expedited incorporation filings alone.

* There are currently some 695,000 active entities registered in Delaware, including 50 percent of the corporations publically traded on the U.S. stock exchange.

* New business formations in Delaware are currently running at about 130,000 per annum.

* The growth of private individual deposits by non-residents was most robust in the United States outranking other popular financial jurisdictions such as the Cayman Islands, United Kingdom, and Luxembourg with total non-resident deposits equalling $2.6 trillion in 2007.

Nicole Tichon of U.S. PIRG, probably the foremost homegrown tax-haven basher, said the United States needs to get its tax act together.

"If the U.S. wants to be taken seriously by the international community and try to get their cooperation, then we've got to crack down on what's going on here at home. We can't have it both ways," said Tichon. "Bank secrecy breeds the same problems, the same criminal behavior, and puts up the same roadblocks to law enforcement regardless of where it occurs. As long as the U.S. government looks the other way, it diminishes our credibility on this issue."

The Obama administration talked a good game at first about clamping down on U.S. corporations that abuse tax shelters, but the administration has since waffled.

Click here for the full rankings.

Comments

[richdibo]

http://www.justice.gov/opa/pr/2008/June/08-tax-579.html

Go Obama!

[MyWhiteHouse]

Enough with this recovery B$ news

WHERE ARE THE JOBS YOU PROMISED, OBAMMI?

good articles: http://financeopinionss.blogspot.com

[bairesfiesta]

Once a company gets a federal ID and you need a federal id to open a US company bank account, they have to start filing with the IRS regardless of where they are from.

[richdibo]

"Delaware is attractive because it does not tax profits realized outside the state and does not require companies to be physically present, according to the Tax Justice Network."
http://www.reuters.com/article/domesticNews/idUSTRE59U1VB20091101

The US constitution prohibits Delaware and every other state in the US from taxing tax profits realized outside their respective state. (Not to be confused with formula apportionment for a unitary group.) This basic tenant of state taxation is affirmed by a litany of federal cases, including the US Supreme Court.

In states where a corporation is not physically present, it has agents for their required legal presence. Corporations have to register with a state's Secretary in all states in which they do business.

It appears that Mr. Delaney and TJN are dining together; they are both out to lunch.

[richdibo]

Mr. Delaney:

Shame on you for your sloppy, one-sided "journalism."

A quick search would have brought an opposing view:

http://www.reuters.com/article/domesticNews/idUSTRE59U1VB20091101

"Larry Hamermesh, a business law professor at Widener University in Delaware, said the state gets an unfair rap.

For example, he said tax justice groups criticize the state for not obtaining companies' beneficial ownership information when they incorporate in the state.

But no other U.S. state actually requires such information, Hamermesh said.

"Delaware is no more secret than any other U.S. state," he said, noting that Delaware's attraction to business is its flexible laws and expert courts."

[rosiebond007]

Time to bust their chops - there's plenty of tax money to be had on our doorstep !!!

It will pay handsomely for .... HEALTHCARE FOR ALL !!!

[StopMakingSense2]

We are better at fixing others problems than our own. At least we like to think so. Actually it seems we have reached the point we can't fix anything since the system is ruled by vested interests who profit on it being broken. We used to be the can do nation.

[RJII]

WE'RE NUMBER ONE! WE'RE NUMBER ONE! USA!, USA!

we should have proposed Delaware as our Olympic bid

[WeMustSpeakOut]

LOL

[Glenda Vickery]

I don't think this person knows what the heck he's talking about.

[rosiebond007]

iT'S A FACT - DO SOME RESEARCH

[richdibo]

Yes, it is a fact that he doesn't know what he is talking about.

[WhyAreThingsThe]

The only winners from this economic recovery are Goldman ...great country we live in
hat tip to http://financeopinionss.blogspot.com

get the know

[SaltySaltillo]

This article by Delaney is absolute nonsense. If you find the article persuasive, you should pause and consider doing more independent study of the matter. I find it strangely disturbing that this non-truth written by Delaney has stirred up so many knee jerk reactions.

[GrahamInCanada]

This article is not absolute nonsense.

Please yourself consider doing more independent study. For example, you could read the actual reports:

http://www.secrecyjurisdictions.com/jurisdictionreports

The report on Delaware found:

Delaware provides banking secrecy; does not put details of trusts on public record; does not comply sufficiently with international regulatory requirements; does not require that company accounts be available on public record; does not require that beneficial ownership of companies is recorded on public record; does not maintain company ownership details in official records; does not participate in the European Union Savings Tax Directive; does not have adequate access to banking information; allows company redomiciliation; allows protected cell companies.

[SaltySaltillo]

This article is not about what the secrecyjur­isdictions­.com report says... Delaney has done a hatchet job, and many of us have pointed out the many things that make Delaney's article nonsense.

But since you seem so excited about the jurisdiction report, let's talk about the numerous flaws and questionable aspects of the same.
Here are my comments:
1) the 12 factor methodology is flawed because the 12 factors are arbitrarily defined and often ignore other elements of the law in a jurisdiction that make criminal conduct difficult.
2) the methodology is also flawed because the conclusions do not follow from the presence or absence of the factors identified.
3) The report confuses, and seems not to understand, the principles of federalism or the difference between state law and federal law.
4) the report doesn't actually rely on primary source data like actual statutes, but relies on other third party reports for a lot of its information.

And then when this information gets into the hands of a loose cannon like Delaney, duck for cover... knees get jerking in all directions.

[SaltySaltillo]

First point: flawed methodology.
Banking Secrecy: the report divides all jurisdictions into jurisdictions that either provide "banking secrecy" or don't. The criteria for separating jurisdictions is confusing, but essentially it boils down to whether competent authorities can compel banks to disclose information about customers and whether there are criminal sanctions for not cooperating with the authorities. Between you and me, even if you apparently live in Canada, and even if you know nothing about the law, do you really think that the IRS, the FBI, or any other law enforcement body could not compel a Delaware bank to disclose information on its depositers? I bet you would be surprised if this were the case, and with good reason: there is no such banking secrecy protection afforded to depositors in the USA. The Bank Secrecy Act of 1970s as supplemented by the USA PATRIOT Act of 2001 gives the federal government broad powers to compel banks to disclose confidential information about customers... There is no significant Banking Secrecy in the United States, despite what your report says to the contrary.

[SaltySaltillo]

The report makes the dubious claim that, based on the FATF rating recommendations of 2003, the USA is one of the least compliant money laundering jurisdictions in the world. BTW, no country on Earth was given a passing grade by the TJN for this category. But when the TJN ranked the countries of the world in terms how tough they were on money laundering prevention, only Singapore ranked higher than the US. In other words, even though TJN didn't consider any country good enough, the US is still the 2nd toughest place on Earth to engage in money laundering.

[SaltySaltillo]

The TJN also gave USA low marks because the USA does not require companies to file annual accounting statements with the government. But this ignores the fact that most companies file very detailed tax returns which contain much of the same information that would be contained in a set of year end accounting statements.

I could go on and on about how each one of the factors that were used to determine the USA was a veil of secrecy are flawed. But the most remarkable thing is how many of the factors were factors that resulted in Great Britain getting high marks for transparency. This should tell you something: the British authors of the jurisdiction report were operating from within a "framing bias" when identifying the criteria for secrecy/tr­ansparency based on their own personal experience with Great Britain's transparency measures. This made it difficult from them to see if another country has an alternative set of institutional structures that could give the same level of transparency, without doing things "just like in Great Britain". Such is the case with tax return filings versus accounting statement filings...

[SaltySaltillo]

Third point: the TJN doesn't understand the difference between federal law and state law and mix the two so that the United States as a whole might get low marks for a particular aspect of Delaware law (such as whether corporations need to register ownership with government) or Delaware might get dinged because of the apparent lack of something at the level of Delaware state law when in fact there is ample federal law that provides the same protection (such as the case with federal banking secrecy laws that make up for the absence of banking secrecy laws at the state level).

Going back to the flawed methodology critique, I find it ironic that most REAL tax havens, such as the Cayman Islands, etc., do have share register requirements under the company laws of those jurisdictions, but it is the USA that gets dinged as a place of great secrecy. This again goes to the "framing bias" question: most tax havens have company laws modeled in some way on the laws of England and Wales or some other common law jurisdiction, so the TJN is confusing whether a particular law that resembles an English law exists, as opposed to asking whether a different set of institutional arrangements exists that serves the same purpose.

[Kiri sute gomen]

Maybe you should of read the supporting information before making a knee-jerk reactionary post?

[SaltySaltillo]

I and others have pointed out the many flaws of both this article and the allegations made at secrecyjur­isdictions­.com ad nauseum. In a nutshell:
There is a critique to be made of Delaney's article, his use of insinuation and juxtaposition of irrelevant facts as supporting evidence for his thesis.
There is a critique to be made of the jurisdiction report on secrecyjur­isdictions­.com.
There is a critique to be made of the comments of readers who are extrapolating and jumping to conclusions about totally secondary issues and matters that are not even raised by either Delaney or secrecyjur­isdictions­.com.

Then, finally, there is a critique about how it all hangs together - namely Delaney's misinterpretation of the jurisdiction report.

Which critique would you like?

[JScott]

Hmm seems like Luxembourg and the UK have single payer healthcare, so tax sheltered economies can't be an excuse to not have it in this country

[Veri]

After the Crash of '07, American business sense is hard to take seriously. How about that gi-normous corporate tax rate America has? Oh, wait! Take out the loopholes and you are likely not to pay any taxes. Or a corporation can enjoy a nice tax rate of (effectively) five percent - yes, 5%.

And with CEO-Presidents of America of late, and the Corporate Board of Congress, well - corporations seem to be winning. Or at least, the oligarchs are.

[StickMarket]

need to stop the admixure of money & politics. Time 4 the peopel to get the reform they need. heath care, education, a stable well paying job, and housing.

good articles; http://financeopinionss.blogspot.com

Lets hope Obama will succeed

[edwcorey]

Joe "the Drug Warrior" Biden's state. Where usury is legal and the recent draconian bankruptcy laws came from. That shows the moronic state of our legislation: Harsher bankruptcy laws lead to record bankruptcies and foreclosures. Hail to our brightest and best!