Delaware offers tempting tax refuge

Amid a US crackdown on global tax havens, one of its own states offers financial "loophole".


    You can set up a Delaware shell company with just a laptop and a credit card

    Have you ever had the feeling you're being chased?

    That's probably how it seems right now if you're a tax cheat.

    World leaders have launched an almighty money hunt and they say they're going after the super rich.

    But, if you are trying to hide millions of dollars that should be paid in taxes, there is still one particularly reliable country to bury the money. The very place that's leading the crackdown on tax havens – the United States of America.


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    It was in April that both Barack Obama, the US president, and Gordon Brown, the British prime minister, promised to bring an end to banking secrecy and pursue jurisdictions which open their doors and bank vaults to tax cheats.

    But critics, including banking chiefs and politicians in both Switzerland and Monaco, have told Al Jazeera that the US is actually one of the biggest offenders.

    A senior figure in the Swiss banking industry, speaking on the condition of anonymity, said that Washington is targeting other countries, but failing to look at the tax loopholes within its own jurisdiction.

    Delaware dealings

    More than 6,500 companies are registered on the sleepy North Orange Street in Wilmington, Delaware, but most make absolutely nothing and employ only one person.

    They all go there for the same reason – to avoid paying taxes elsewhere.

    And Delaware is a popular place. Two thirds of the companies in the Fortune 500 have subsidiaries listed here.

    Users can move their money 'off-shore' with the click of a button
    It is surprisingly easy to set up a Delaware shell company.

    All it takes is a few minutes, a laptop and a credit card. You can do it from anywhere in the world.

    They ask for a name and address and then ask you to confirm you'll be the beneficial owner of the company. Then you need to identify the source of your funds.

    On the website viewed by Al Jazeera, the registration costs are just $1,750.

    The annual fees are then $1,100. All together it comes in at less than $3,000.

    It may be hard to believe, but you really can move your money 'off-shore' with the click of a button.

    State law

    Companies use Delaware shell companies by transferring ownership of all their non-tangible assets, including creative- and knowledge-based things like trademarks, patents and investments, to the shell company.


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    The parent company then pays royalties, or license fees, to the shell company for using the assets. They are effectively paying money to themselves.

    Some companies are then able to claim tax deductions in the place where they are actually doing their business.

    The added bonus is that the profits made by the shell company in Delaware are tax free and can get pushed back to the parent company in the form of dividends and loans.

    Shell companies and holding companies can be established in many jurisdictions, although few have the same tax advantages available in Delaware.

    The crusading Tax Justice Network is highly critical of Delaware shell companies, although Richard Geisenberger, Delaware's assistant secretary of state, recently told the New York Times that the opportunities presented by the state's tax regulation "is simply a state tax law".

    The claim being that Delaware does not allow tax evasion. There are plenty of people, particularly in places like Monaco and Switzerland, who would argue otherwise.

    SOURCE: Al Jazeera


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