Welcome to Delaware — the home of tax-dodging American corporate giants.
Source: ThinkStock
THERE’S an office building in Wilmington, Delaware that is entirely
unremarkable in physical appearance. Two storeys, beige brickwork, metal
window frames and a red awning.
It’s completely average in every way except for one extraordinary
fact. It is the official legal address to almost 300,000 businesses
including giants of the corporate world such as Coca-Cola, Ford, Google,
News Corp (owner of news.com.au), Apple and General Electric, as
revealed by The New York Times.
This building (1209 North Orange Street) and
several others in Delaware is how more than half of America’s
publicly-listed companies, and two-thirds of Fortune 500 businesses,
legally minimise their tax bill.
1209 North Orange Street, Wilmington, Delaware. Image: Google Maps.
Source: Supplied
Delaware’s laws and regulations are so business friendly, it actually led
officials in the Cayman Islands to complain about how lax the state is in comparison to the more infamous tropics.
You’d
be forgiven if you can’t place Delaware on a map. It’s a tiny east
coast state whose less than a million denizens account for only 0.29 per
cent of the total US population.
Its main city, Wilmington, is
approximately halfway between New York City and Washington DC, and it’s
America’s second smallest state by land mass. In the US presidential
elections, Delaware gets only three electoral votes, compared to the
country’s biggest state, California, which gets 55.
But a perusal
of America’s biggest and most well-known corporations and you’ll find
they are incorporated in Delaware, far from their actual headquarters in
California, Georgia, Nebraska, Michigan, Illinois or New York. Think
Walmart, General Motors, Berkshire Hathaway, Disney, Facebook, Amazon,
JP Morgan, Kraft, Netflix, McDonald’s and American Airlines.
See that tiny red speck? That's Delaware. Image: Wikimedia Commons.
Source: Supplied
So what is it about Delaware that is attracting business like no other states?
There are a couple of factors at work, one of which is tax benefits. Surprise.
According to the New York Times
, Delaware allows companies which are incorporated
(the process of separating a company from an individual ie. Facebook and
Mark Zuckerberg are separate entities under business law) there to
reduce their tax obligations by shifting certain revenues to holding
companies in Delaware.
Specifically, Delaware doesn’t apply tax on
what’s termed ‘intangible assets’ such as trademarks, royalties, leases
and copyrights. For example, if company X held the copyright to song Y,
every time song Y is licenced for use, company X collects royalty fees.
Those fees are liable for tax collection in the state company X
actually operates in. But if company X shifts that revenue to Delaware,
then that cash stream isn’t taxed, saving it tons of money every year.
Coca-Cola’s actual home office may be in Atlanta, Georgia, but its legal address is in Delaware.
Source: AP
The
Net estimated in the 10 years to 2012, the Delaware loophole allowed American companies to get away with reducing their
tax bills to other states by $9.5 billion. This, unsurprisingly, has ruffled feathers in other statehouses, who are missing out on those tax dollars.
But
it’s not the only reason Delaware is such an attractive proposition to
its more than a million companies — there are more companies
incorporated in Delaware than there are people. Because Delaware
generates a quarter of its state budget from fees and taxes from these
companies, it’s in the state’s best interest to keep them happy. Very
happy.
And one of the ways it does that is with business-friendly
laws and regulations free of red tape. Delaware is one of the easiest
places in the world to set up a business with its
Department of State office open until 10:30pm on Mondays to Thursdays and midnight on Fridays. It can take less than an hour to incorporate a company.
Delaware’s most famous resident: US
vice president Joe Biden, who represented Delaware as a senator for 36
years. His son, Beau Biden, is the state’s attorney-general.
Source: AP
It also requires very little paperwork from businesses setting up.
Critics argue that lack of demand for credentials or transparency
allows criminals to take advantage of the system. Many law-skirters have been caught laundering money through shell companies incorporated in Delaware.
The Economist reported
investigators have joked Delaware is an acronym for ‘Dollars and euros Laundered And Washed At Reasonable Expense’.
However, the other reason why businesses are so enamoured with Delaware is because of its court system. The state set up the
respected Court of Chancery
in 1792, which only hears business disputes. The court is timely and
presided over by judges incredibly well-versed in the state’s business
laws. There is also more than 200 years of case law and precedent which
means there are very few surprises in the verdicts.
McDonald’s is another company incorporated in Delaware. Its headquarters are actually in Chicago, Illinois.
Source: AFP
Corporate lawyers all over the country are well versed in two sets of
business law — those of their home state and those of Delaware, which
is taught in academic institutions across the US.
Plus, it’s
self-perpetuating. The next generation of US companies are also
incorporating their businesses in Delaware with start-ups following the
example of their bigger siblings if they want to attract investors.
The
founder of a Virginia-based technology start-up, who declined to be
named, told news.com.au: “Delaware has the most straightforward rules
for corporations and companies and venture capitalists prefer to go with
what they know.
“They know exactly what to expect in Delaware
rules, rather than having to know the rules of 50 different states. Over
time, Delaware has just become the go-to and easy place, and you’re
expected to incorporate there if you’re serious about growth.”
General Electric’s real headquarters are in Connecticut.
Source: Supplied
So what does this all have to do with that nondescript building in
Wilmington? 1209 North Orange St is like a dropbox for all those
companies. The address belongs to a company called CT Corporation, which
acts as a ‘mail-forwarder’ for its clients. And it’s what allows those
companies to be incorporated in the tax-haven that is Delaware, with its
cushy business perks, rather than their actual home states.
news.com.au 8 Apr 2014
This is how governments allow global giants to defraud the people (taxpayers) of their earnings.
ALL U.S. CITIZENS ARE LEGALLY OWNED CORPORATE SLAVES.