In 2010, the United States implemented the Foreign Account Tax Compliance Act; the law required financial firms around the world to report accounts held by US citizens to the Internal Revenue Service. The US on the other hand refused the Common Reporting Standard set up by the Organisation for Economic Co-operation and Development, alongside Vanuatu and Bahrain.
This means the US receives tax and asset information for American assets and income abroad, but does not share information about what happens in the United States with other countries. In other words, it has become attractive as a tax haven.
The Tax Justice Network ranks the US third in terms of the secrecy and scale of its offshore financial industry, behind Switzerland and Hong Kong but ahead of the Cayman Islands and Luxembourg. The United States has been popular as a destination for offshore funds for Chinese investors, said Canadian financial crimes expert Bill Majcher, because investors think it will resist pressure from China. Andrew Penney from Rothschild & Co described the US as "effectively the biggest tax haven in the world" and Trident Trust Co., one of the world's biggest providers of offshore trusts, moved dozens of accounts out of Switzerland and Grand Cayman, and into Sioux Falls, saying: "Cayman was slammed in December, closing things that people were withdrawing ... I was surprised at how many were coming across that were formerly Swiss bank accounts, but they want out of Switzerland."
A 2012 study by various US universities showed that the US has the most lenient regulations for setting up a shell company anywhere in the world outside of Kenya. Tax havens such as the Cayman Islands, Jersey and the Bahamas were far less permissive, researchers found, than states such as Nevada, Delaware, Montana, South Dakota, Wyoming and New York. "[Americans] discovered that they really don't need to go to Panama", said James Henry of the Tax Justice Network. For example, a single address in Wilmington (1209 North Orange Street) — is listed as the headquarters for no fewer than 285,000 separate businesses due to Delaware's desirable corporate taxes and law, and it is estimated that 9 billion dollars of potential taxes is lost over the past decade, due to the Delaware loophole. Both Hillary Clinton and Donald Trump have firms registered in North Orange Street, and lawyers, trust companies and financial firms including Rothschild & Co are moving offshore accounts from locations such as Switzerland and the Cayman Islands into the US to take advantage of the country's loose regulations, calling it the "new Switzerland" (see Banking in Switzerland).
Mark Hays of Global Witness said "the US is one of the easiest places to set up so-called anonymous shell companies", and Stefanie Ostfeld from the same organization said that "the US is just as big a secrecy jurisdiction as so many of these Caribbean countries and Panama". More than 1.1 million live legal entities were incorporated in Delaware at the end of 2014. An increasing number – more than 70% – of those were LLC. The Delaware Division of Corporations said in August 2015 that "an LLC entices all types of people since it is easy to operate and oversee", and Delaware is currently one of the few states without sales tax. Delaware does not tax companies which operate there, nor their royalty income. However, the LLC is more popular and often less expensive in states such as Wyoming, Nevada and Oregon. Approximately 668,000 anonymous LLCs are registered just in those three states.
Offshore tax avoidance
Despite this, the US Public Interest Research Group (PIRG) said in 2014 that the United States loses roughly $184 billion per year due to corporations such as Pfizer, Microsoft and Citigroup using offshore tax havens to avoid paying US taxes. According to PIRG:
- Pfizer paid no US income taxes 2010–2012, despite earning $43 billion. The corporation received more than $2 billion in federal tax refunds. In 2013, Pfizer operated 128 subsidiaries in tax havens and had $69 billion offshore which could not be collected by the Internal Revenue Service (IRS);
- Microsoft maintains five tax haven subsidiaries and held $76.4 billion overseas in 2013, thus saving the corporation $24.4 billion in taxes;
- Citigroup maintained 21 subsidiaries in tax haven countries in 2013, and kept $43.8 billion in offshore jurisdictions, thus saving the corporation an additional $11.7 billion in taxes.
- Delaware General Corporation Law
- Nevada corporation
- Panama as a tax haven
- Panama Papers
- Reactions to the Panama Papers
- Ireland as a tax haven
- Drucker, Jesse (January 27, 2016). "The World's Favorite New Tax Haven Is the United States". Bloomberg Businessweek. Retrieved April 23, 2016.
- Swanson, Ana (April 5, 2016). "How the U.S. became one of the world's biggest tax havens". Washington Post. Retrieved April 23, 2016.
- "Financial Secrecy Index 2015 reveals improving global financial transparency, but USA threatens progress" (PDF). Tax Justice Network. November 2, 2015. Retrieved May 2, 2016.
- Wood, Robert W. (January 27, 2016). "The World's Next Top Tax Haven Is...America". Forbes. Retrieved May 2, 2016.
- Yasuo Awai (23 April 2016). "A third of Panama Papers shell companies set up from Hong Kong, China". Nikkei Asian Review. Archived from the original on 15 May 2016. Retrieved 23 April 2016.
- Michael Findley, University of Texas at Austin; Daniel Nielson, Brigham Young University; Jason Sharman, Griffith University. "Global Shell Games: Testing Money Launderers' and Terrorist Financiers' Access to Shell Companies". Cite journal requires
- Leslie Waynejune: How Delaware Thrives as a Corporate Tax Haven, The New York Times, June 30, 2012
- Neate, Rupert (2016-04-25). "Trump and Clinton share Delaware tax 'loophole' address with 285,000 firms". The Guardian. ISSN 0261-3077. Retrieved 2016-04-25.
- Hoxie, Josh (May 6, 2016). "American Tax Havens: Elites Don't Have to go to Panama to Hide Their Money–They've Got Delaware". CounterPunch. Retrieved May 7, 2016.
- Drucker, Jesse (April 5, 2016). "Panama Has Company as Bank-Secrecy Holdout, as U.S. Offers Haven". Bloomberg. Retrieved May 2, 2016.
- "In the City: Shady sunspots". Private Eye (1416). April 15, 2016. p. 41.
- Melsen, Brett (August 31, 2015). "Delaware Division of Corporations 2014 Annual Report". www.delawareinc.com. Delaware Division of Corporations. Retrieved April 24, 2016.
- "Picking Up the Tab 2014". U.S. PIRG. April 15, 2014.
- USA - Financial Secrecy Index (published by the Tax Justice Network)
- Tax Havens and Abusive Tax Schemes (published by the Permanent Subcommittee on Investigations)
- Further reading
- Kasperkevic, Jana (April 6, 2016). "Forget Panama: it's easier to hide your money in the US than almost anywhere". The Guardian.
- Cotorceanu, Peter (April 8, 2016). "Why America Loves Being the World's No. 1 Tax Haven". POLITICO Magazine.
- Phippen, J. Weston (April 6, 2016). "Nevada, a Tax Haven for Only $174". The Atlantic.
- Wayne, Leslie (June 30, 2012). "How Delaware Thrives as a Corporate Tax Haven". The New York Times.
- "The biggest loophole of all". The Economist. February 20, 2016.
- Wood, Robert W. (November 3, 2015). "U.S. Ranks As Top Tax Haven, Refusing To Share Tax Data Despite FATCA". Forbes.