27 April 2009

Tax Havens, Politics and Scapegoats (2/3)


It seems that we are going towards the legitimation of the the strongest, biggest financial centers and tax havens while smaller countries and territories are stigmatized.

Indeed, the OECD found that its definition caught certain aspects of its members' tax systems (most developed countries have low or zero taxes for certain favored groups). Its later work has therefore focused on the single aspect of information exchange. This is obviously a flawed decision. This single criteria for defining a tax haven is inadequate and goes against common sense, but is politically expedient because it includes the small tax havens (with little power in the international political arena) but exempts the powerful countries with tax haven aspects such as the USA and UK.

For example one of the most permissive location for business is the State of Delaware in the US (where Joe Biden, the current Vice-President, was a senator). Let’s review it quickly:
  • 43% of companies on the NYSE are incorporated in Delaware (over 400.000 companies i.e. +/- 1 company for 2.5 inhabitants and growing)
  • Significantly low income tax levels (below 6%)
  • No need to disclose the beneficial owner of assets (Delaware having passed the test of transparency, no jurisdiction should be included in the OECD list)
  • Partnership taxation laws which make it favorable to non-US entities, typically allowing taxation at 0% where the partners are registered in non-US jurisdictions
  • Anti-hostile takeover legislation and strong protection of companies’ management
If you want more detailed information, go to the State of Delaware official website

To summarize and according to the State of Delware web site:
"Corporations choose Delaware for the following reasons:

1. Ease of incorporating,
2. Business-friendly climate,
3. Fast services provided by the Secretary of State's Office and
4. Delaware's Court of Chancery. (Our Court of Chancery is well known for its ability to issue timely decisions on complex corporate matters, and its wealth of case law ensures consistent answers to corporate questions.)
If you form a corporation in Delaware, you are required to pay an annual Franchise tax to the Delaware Department of State for the privilege of incorporating in Delaware. Franchise Tax is based on the number of the corporation's authorized shares and costs a couple of tens of dollars."

Funny enough (well, not so funny) the Delaware Statutory Trust has been widely used for structured finance deals such as asset securitization.

Let’s review the politics during the G20 meeting and their interaction with the OECD list.