diverdog
7/1/2012, 07:12 AM
This is an interesting read on how my small state's extremely sophisticated and highly secretive corporate tax haven works. The article specifically talks about how Pennsylvania gas exploration companies are using Delaware to hide taxes. How we have managed to fight off the feds is beyond me. Anyway this is the world I live in.
How Delaware Thrives as a Corporate Tax Haven
By LESLIE WAYNE (http://topics.nytimes.com/top/reference/timestopics/people/w/leslie_wayne/index.html)
WILMINGTON, Del.
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 (http://sos.delaware.gov/) 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 (http://restoreourfuture.com/) 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 (http://sos.delaware.gov/rgbio.shtml) 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 (http://www.law.gwu.edu/Faculty/profile.aspx?id=3174) 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 (http://topics.nytimes.com/top/reference/timestopics/people/b/viktor_bout/index.html), 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 (http://topics.nytimes.com/top/reference/timestopics/people/a/jack_abramoff/index.html?8qa) 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 (http://www.reportingproject.net/occrp/), 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 (http://www.capitalconservator.com/), says. It goes on: (http://www.capitalconservator.com/offshore-companies/us-llc.php) “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.”
The rest of the article is linked below.
http://www.nytimes.com/2012/07/01/business/how-delaware-thrives-as-a-corporate-tax-haven.html?hp
How Delaware Thrives as a Corporate Tax Haven
By LESLIE WAYNE (http://topics.nytimes.com/top/reference/timestopics/people/w/leslie_wayne/index.html)
WILMINGTON, Del.
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 (http://sos.delaware.gov/) 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 (http://restoreourfuture.com/) 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 (http://sos.delaware.gov/rgbio.shtml) 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 (http://www.law.gwu.edu/Faculty/profile.aspx?id=3174) 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 (http://topics.nytimes.com/top/reference/timestopics/people/b/viktor_bout/index.html), 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 (http://topics.nytimes.com/top/reference/timestopics/people/a/jack_abramoff/index.html?8qa) 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 (http://www.reportingproject.net/occrp/), 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 (http://www.capitalconservator.com/), says. It goes on: (http://www.capitalconservator.com/offshore-companies/us-llc.php) “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.”
The rest of the article is linked below.
http://www.nytimes.com/2012/07/01/business/how-delaware-thrives-as-a-corporate-tax-haven.html?hp