FREE ELECTRONIC LIBRARY - Dissertations, online materials

Pages:   || 2 |

«BUSINESS DAY How Delaware Thrives as a Corporate Tax Haven By LESLIE WAYNE JUNE 30, 2012 WILMINGTON, Del. NOTHING about 1209 North Orange Street ...»

-- [ Page 1 ] --



How Delaware Thrives as a Corporate Tax




NOTHING about 1209 North Orange Street hints at the secrets inside. It’s a

humdrum office building, a low-slung affair with a faded awning and a view of a

parking garage. Hardly worth a second glance. If a first one.

But behind its doors is one of the most remarkable corporate collections in the

world: 1209 North Orange, you see, is the legal address of no fewer than 285,000 separate businesses.

Its occupants, on paper, include giants like American Airlines, Apple, Bank of America, Berkshire Hathaway, Cargill, Coca-Cola, Ford, General Electric, Google, JPMorgan Chase, and Wal-Mart. These companies do business across the nation and around the world. Here at 1209 North Orange, they simply have a dropbox.

What attracts these marquee names to 1209 North Orange and to other Delaware addresses also attracts less-upstanding corporate citizens. For instance, 1209 North Orange was, until recently, a business address of Timothy S. Durham, known as “the Midwest Madoff.” On June 20, Mr. Durham was found guilty of bilking 5,000 mostly middle-class and elderly investors out of $207 million. It was also an address of Stanko Subotic, a Serbian businessman and convicted smuggler — just one of many Eastern Europeans drawn to the state.

Big corporations, small-time businesses, rogues, scoundrels and worse — all have turned up at Delaware addresses in hopes of minimizing taxes, skirting regulations, plying friendly courts or, when needed, covering their tracks. Federal authorities worry that, in addition to the legitimate businesses flocking here, drug traffickers, embezzlers and money launderers are increasingly heading to Delaware, too. It’s easy to set up shell companies here, no questions asked.

“Shells are the No. 1 vehicle for laundering illicit money and criminal proceeds,” said Lanny A. Breuer, assistant attorney general for the criminal division of the Justice Department. “It’s an enormous criminal justice problem. It’s ridiculously easy for a criminal to set up a shell corporation and use the banking system, and we have to stop it.” In these troubled economic times, when many states are desperate for tax dollars, Delaware stands out in sharp relief. The First State, land of DuPont, broiler chickens and, as it happens, Vice President Joseph R. Biden Jr., increasingly resembles a freewheeling offshore haven, right on America’s shores. Officials in other states complain that Delaware’s cozy corporate setup robs their states of billions of tax dollars. Officials in the Cayman Islands, a favorite Caribbean haunt of secretive hedge funds, say Delaware is today playing faster and looser than the offshore jurisdictions that raise hackles in Washington.

And international bodies, most recently the World Bank, are increasingly pointing fingers at the state.

Of course, business — the legal kind — has been the business of Delaware since 1792, when the state established its Court of Chancery to handle business affairs. By the early 20th century, the state was writing friendly corporate and tax laws to lure companies from New York, New Jersey and elsewhere. Most of the businesses incorporated here are legitimate and many are using all legal means to reduce their tax bills — something that most stockholders applaud.

President Obama has criticized outposts like the Caymans, complaining that they harbor giant tax schemes. But here in Wilmington, just over 100 miles from Washington, is in some ways the biggest corporate haven of all. It takes less than an hour to incorporate a company in Delaware, and the state is so eager to attract businesses that the office of its secretary of state stays open until midnight Monday through Thursday — and until 10:30 p.m. on Friday.

Nearly half of all public corporations in the United States are incorporated in Delaware. Last year, 133,297 businesses set up here. And, at last count, Delaware had more corporate entities, public and private, than people — 945,326 to 897,934.

One Delaware company was used last year to make an anonymous $1 million donation to Restore Our Future, a super PAC that favors Mitt Romney for president.

Restore Our Future ultimately disclosed that the money came from a former Bain Capital executive. The Romney campaign declined comment, and Restore Our Future did not return calls.

Delaware’s tax laws are a bonanza for the state. At a time when many states are being squeezed by a difficult economy, Delaware collected roughly $860 million in taxes and fees from its absentee corporate residents in 2011. That money accounted for a quarter of the state’s total budget.

“Companies choose our state and we are proud of it,” said Richard J.

Geisenberger, Delaware’s chief deputy secretary of state and its leading ambassador to business. “We spend a lot of time in the United States and traveling internationally to let people know that Delaware is a great place to do business.” It is also a great place to reduce a tax bill. Delaware today regularly tops lists of domestic and foreign tax havens because it allows companies to lower their taxes in another state — for instance, the state in which they actually do business or have their headquarters — by shifting royalties and similar revenues to holding companies in Delaware, where they are not taxed. In tax circles, the arrangement is known as “the Delaware loophole.” Over the last decade, the Delaware loophole has enabled corporations to reduce the taxes paid to other states by an estimated $9.5 billion.

State lawmakers in Pennsylvania are now trying to close the loophole, arguing that their state is being robbed of its tax dollars. Of particular concern is that many companies involved in drilling for natural gas in the Marcellus Shale region of Pennsylvania are, in fact, incorporating in Delaware instead.

“Delaware is an outlier in the way it does business,” said David E. Brunori, a professor at George Washington Law School and an expert on taxation. “What it offers is an opportunity to game the system and do it legally.” WHAT does it take to incorporate a company in Delaware? Not a lot, tax experts say. Shell companies — those with no employees, no assets and, in fact, no real business to speak of — are remarkably easy to establish here, and it doesn’t always matter who you are or what business you are in. Viktor Bout, the Russian arms dealer known as “the merchant of death,” used two Delaware addresses. In April he was sentenced to 25 years in prison on terrorism charges resulting from an American sting operation.

Jack Abramoff, the former Washington lobbyist jailed on corruption charges, set up a sham Delaware corporation to hide millions in payments and circumvent federal laws. Mr. Subotic, the Serbian businessman who was tried in absentia last October for his role in a cigarette smuggling scheme and sentenced to six years, used three airplanes that were registered in Delaware, including two at 1209 North Orange. Mr. Subotic lives in Geneva and denies the charges.

The Organized Crime and Corruption Reporting Project, an international group based in Sarajevo, has identified other Eastern Europeans with Delaware links.

Among them is Laszlo Kiss, an Romanian accountant and author of “United States, Tax Heaven — Uncle Sam Will Fight Your Taxes!” that praised the state’s lax rules.

He is now awaiting trial in Bucharest on charges of helping embezzle and launder $10 million through Delaware shells.

“Delaware is the state that requires the least amount of information,” says David Finzer, the chief executive of Capital Conservator, a registration agent that sets up accounts in Delaware and elsewhere for non-United States citizens. “Basically, it requires none. Delaware has the most secret companies in the world and the easiest to form.” Mr. Finzer, an American based in Novi Sad, Serbia, advertises his services

online. “Tax-Free Havens for Non-U.S. Citizens,” his Web site, says. It goes on:

“More than 50 percent of the major corporations in the world are incorporated in Delaware. Why? Because in provides the anonymity that most offshore jurisdictions do not offer.” That is exactly what troubles law enforcement agencies and some in Congress who are trying to rein in Delaware. The state is seen as an onshore alternative with regulations more lax than such well-known offshore tax havens as the Isle of Man, Jersey and the Caymans, which require greater disclosure. Even more, a Delaware registration allows a business, legitimate or not, to open a bank account anywhere in the world with the patina of an American address.

“You can have companies in Delaware that have no U.S. bank accounts, no requirements for documentation and no one knows who owns them,” says Anthony B. Travers, chairman of the Cayman Islands Stock Exchange and former chairman of that country’s Financial Services Association. “There should be a level playing field and Delaware should have to comply with the same standards as the Caymans.” Delaware isn’t the only state that has gone this route. Three others — Nevada, Wyoming and Oregon — have also been cited by the Financial Crimes Enforcement Network, a division of the United States Treasury Department, as “particularly appealing” for the formation of shell companies. Of those four states, Delaware stands out as the one offering the least transparency and the most secrecy, this group says.

“What is so galling about secrecy in the United States is that there is no attempt to document who owns a corporation,” said Richard Murphy, a senior adviser at the Tax Justice Network, an independent organization based in London that researches tax havens. “Two million corporations are formed each year in the United States, more than anywhere else in the world. Delaware, in turn, is the biggest single source of anonymous corporations in the world.” Mr. Murphy adds: “Why go to the Caymans when you can just go down the street?” In 2009, the Tax Justice Network named the United States as No. 1 on its Financial Secrecy Index, ahead of Luxembourg and Switzerland. It cited Delaware as one of the reasons.

That, Mr. Murphy says, elicited howls in Wilmington. “The reaction was: ‘This cannot be true.’ Not only can it be true, it is true.” (The United States has since fallen to fifth place, behind Switzerland, the Caymans, Luxembourg and Hong Kong, after the group changed its method.) For years, Senator Carl Levin, a Michigan Democrat, has been leading a quixotic effort to adopt legislation that would require states to collect information on the “beneficial ownership” of companies incorporated within their borders.

That would require states to add the name of the person standing behind the corporation — its beneficial owner — on incorporation papers. To sweeten the pot, the legislation would exempt public companies, hedge funds and other large corporations, along with mom-and-pop businesses where ownership is clear. In addition, the federal government would pick up the tab for putting the law into effect.

Senator Levin has long complained that it takes more information to get a driver’s license than to set up a corporation in America. Three times since 2000, he has introduced his legislation — once co-sponsored by Barack Obama when he was a senator from Illinois — and each time the effort has been rebuffed. He has never even been able to get the measure out of committee.

Law enforcement agencies, human rights groups and the administration are on his side. Last month, a letter supporting Mr. Levin’s measure and signed by 41 different groups was sent to every member of Congress.

But that has been no match for the opposition. Most vocal is the National Association of Secretaries of State, a politically powerful group. It is backed up by the Chamber of Commerce, the American Bar Association and the state of Delaware, which is the lone state to have hired a lobbyist to work on the matter.

Senator Thomas R. Carper, a Delaware Democrat, is in line to be the next chairman of the Senate Homeland Security and Government Affairs Committee, which has jurisdiction over the measure. Mr. Carper has expressed concerns about the measure but has taken no formal position on it.

“Levin is hitting a brick wall,” said Heather Lowe, director of government affairs for Global Financial Integrity, an anticorruption research group. “It’s frustrating.

Delaware is playing a significant role in the committee. Senator Carper is well liked and well respected and he’s not moving on this issue.” The secretaries of state, along with Delaware, argue that the Levin measure would be costly and burdensome, and would discourage business incorporation and capital formation. They add that their offices are generally ill-equipped to process the additional data that would be required. Even more, determining beneficial ownership may not be a simple matter.

“This would be a sea change in how things are done,” said Ross Miller, Nevada’s secretary of state and president-elect of the National Association of Secretaries of State. “It would add red tape and increasing processing time. And if you had a money launderer and asked for his name, he probably wouldn’t be truthful.” Mr. Geisenberger, the chief deputy secretary of state of Delaware, said of the Levin measure: “This would be a massive inhibitor to starting a business. It would end up taking weeks or months to get a business started. And I think a lot of them would move underground and into the black market and just not form a legal entity.” COMPANIES that are incorporated in Delaware need someone on the ground here — an agent or go-between to act on their behalf. That is where the CT Corporation comes in.

CT, a subsidiary of the Dutch information services company Wolters Kluwer, is the largest registered agent in Delaware and, it turns out, the registered agent for 1209 North Orange Street. CT is authorized to transact business at that address, and its main duty is to accept legal notices on behalf of the businesses incorporated here and to pass them along.

CT represents nearly a third of all companies registered in Delaware and 60 percent of Fortune 500 companies. It says that before accepting clients, it screens them against the government’s “Specially Designated Nationals,” a list of people barred from doing business in the United States.

Pages:   || 2 |

Similar works:

«EQUATOR PRINCIPLES ANALYSIS OF THE RAMPAL COALFIRED POWER PLANT PROJECT, BANGLADESH JUNE 2015 INTRODUCTION The Equator Principles (EP) is a risk management framework adopted by 80 financial institutions from around the world for assessing and managing environmental and social risk in projects. According to the Equator Principles website, “Equator Principles Financial Institutions (EPFIs) commit to implementing the EP in their internal environmental and social policies, procedures and...»

«09.04 '‫סדרת ניירות לדיון מס‬ Key Issues in Assessing the Performance of Microfinance Institutions By Ronny Manos Jacob Yaron Ronny Manos The College of Management, Academic Studies, School of Business Administration, 7 Rabin Blvd., P.O.B 25073, Rishon Le-Zion, Israel 75190 Jacob Yaron The College of Management, Academic Studies, School of Business Administration, 7 Rabin Blvd., P.O.B 25073, Rishon Le-Zion, Israel 75190 January 2009 The research was supported by the...»

«Newton Notes Presbyterian Women of Newton Presbytery August, 2015 MODERATOR MUSINGS Combine several thousand women, great speakers, interesting workshops and a welcoming city and you get the Triennial Churchwide Gathering of Presbyterian Women. Women from sixteen countries gathered for four days in Minneapolis to hear about the direction PW is going – its mission efforts, areas of specific concern and how these translate into what our local churches can do to support these efforts. The theme...»

«Vol. 5 Issue 11 November 2015 EDITORIAL On 6th November the second quarter results of FY2015-16 was announced. It was good to witness the sustained performance of our manufacturing and service businesses. We hope the year continues to be a good one with significant topline and bottomline growth. October was pretty eventful; we observed the Vigilance Awareness Week, Rashtriya Ekta Diwas, celebrated Daan Utsav and the first anniversary of the Swachh Bharat Abhiyan. Vigilance Awareness Week was...»

«America’s Trade Policy Towards Japan ‘. an excellent history of bilateral trade relations, focusing on the period from the second US presidential administration of Ronald Reagan through the second administration of Bill Clinton.’ C. Fred Bergsten, Institute for International Economics In the past few years, America has changed from worrying about Japan’s economic might, to worrying about its meltdown. The rise and fall of America’s ‘resultsoriented’ trade policy towards Japan...»

«[1 – 31] Dr. Bontis Testimonials www.NickBontis.com/BontisTestimonials.pdf Professor Nick Bontis is not only a pioneer in the field of intellectual capital, but one of the world’s real experts as well. Thomas Stewart, Previous Editor, Harvard Business Review and FORTUNE Magazine, New York, USA Nick Bontis is a brilliant, provocative thinker who understands the deep changes underway in our society. His presentations are perceptive and persuasive, and always done with great gusto and humour....»

«BOARD OF FINANCE MINUTES OF QUARTERLY REVIEW MEETING October 29, 2013 The Quarterly Review Meeting of the Board of Finance was held on Tuesday, October 29, 2013 at 7:30 p.m. in Seminar Room 295A&B, Board of Education Administrative Offices, 501 Kings Highway East, Fairfield, Connecticut.MEMBERS PRESENT Catherine Albin, Robert Bellitto Jr., Ken Brachfeld, James Brown, Christopher DeWitt, Thomas Flynn, Mary LeClerc, Robert Stone, James Walsh MEMBERS ABSENT None ALSO PRESENT Robert Mayer, Chief...»

«European Journal of Accounting, Auditing and Finance Research Vol.3, No.9, pp.65-74, September 2015 _Published by European Centre for Research Training and Development UK (www.eajournals.org) EFFECTS OF INFORMATION TECHNOLOGY AND ORGANIZATIONAL CULTURE ON THE PERFORMANCE OF ACCOUNTING INFORMATION SYSTEMS (SURVEY IN BANK X BRANCH OFFICES IN BANDUNG) Diamonalisa Sofianti, Nunung Nurhayati, Neisya Accounting Program, Faculty of Economics and Business Bandung Islamic University ABSTRACT: The...»

«DOROTHEA LA “CHON” ABRAHAM Office Mason School of Business College of William and Mary Miller Hall 3008 P.O. Box 8795 Williamsburg, VA 23187-8795 Phone: (757) 221-2803 Email: chon.Abraham@mason.wm.edu Website: http://mason.wm.edu/faculty/directory/abraham_c.php Teaching Interests Business Intelligence Database Development Healthcare Data Analytics Healthcare Management Information Systems Courses Taught: Healthcare Information Technology Seminar (Undergraduate/Graduate) Healthcare Business...»

«Ben Cashore Curriculum Vitae as of Nov 25, 349 pm Professor, Environmental Governance and Political Science, School of Forestry and • Environmental Studies, Yale University1 Joseph C. Fox Director, Yale Fox International Fellows Program • http://www.yale.edu/macmillan/fif/index.html Director, Governance, Environment and Markets Initiative at Yale (GEM) • http://environment.yale.edu/gem Faculty Member, Center for Business and Environment at Yale • Lead Faculty, Earth Systems Governance...»

«Business Strategy at IndusInd Bank*© Smita Aggarwal (Senior Program Director, Centre for Advanced Financial Research and Learning) Nidhi Prabhu (Program Officer, Centre for Advanced Financial Research and Learning) December 2015 * This handout is intended only for class discussion for Program on Business Strategy and Managing Strategic Risk conducted by CAFRAL. Please do not make copies or circulate outside the program. The opinions expressed by the authors are solely intended to stimulate...»

«The Wisdom of Crowds: Mutual Fund Investors’ Aggregate Asset Allocation Decisions John Chalmers, Aditya Kaul and Blake Phillips* We find that the aggregate asset allocation decisions of U.S. mutual fund investors are predicted by economic conditions. An anticipated economic downturn is associated with investor flows away from relatively risky equity funds and towards lower risk money market funds. Turbulent periods see marked flows from equity to money market funds, suggesting that...»

<<  HOME   |    CONTACTS
2016 www.dissertation.xlibx.info - Dissertations, online materials

Materials of this site are available for review, all rights belong to their respective owners.
If you do not agree with the fact that your material is placed on this site, please, email us, we will within 1-2 business days delete him.