What if I tell you that The United States of America has lost Billions of Dollars of Tax Revenue Because of this?
Would the fact surprise you that 66% of the Fortune 500 companies are situated in this State? Did you know that Even Apple and Google are located in this state?
This State is none other than Delaware, popularly called as the Tax Haven for Companies.
What makes Delaware so Fascinating for Businesses?
When you think of Tax Laundering or Tax Evasion, the first thing that would come to your mind would probably be The Swiss Bank or maybe an offshore account in the Cayman.
But What you and I wouldn’t probably think of is Delaware, the 48th least visited State in the US. Over 50% of the US companies are registered in Delaware.
This includes Google, Apple and Coca-Cola, the companies that have been or are the trend setters in their own fields.
As of January 2019, Delaware had over a million registered corporations while having a population of around 960,000.
Image Credits: NY Times
Oh, and my favourite part of this article is that over 300,000 of those corporations are all under a Single roof. This is the Corporation Trust Center in Wellington, Delaware. It is a simple two-storeyed building.
How does these three hundred thousand companies work under the same roof?
Well practically, all the companies under Corporation Trust Center don’t share the same roof. These are practically Shell companies, formed primarily with the purpose of Saving Taxes. These companies are businesses that only exist on paper.
These companies have no Employees, no Inventories. These are just companies that exist on lots and lots of Paper.
The companies take advantage of the fact that it is difficult to trace who owns the assets under a Shell Company. So, there have been various cases registered against organized criminals and people who try to evade taxes, money laundering or embezzle.
Does this mean that Shell companies are only used for Illegal Purposes?
No, there can be various reasons why a company could use a shell company.
Logo credits: Apple
Apple for example, have used this strategy to keep their product (IPAD) a secret before the actual launch.
Another use of Shell company could be when the companies want to do mergers and acquisition and want to transfer assets from one company to another.
But the primary reason why most of the companies use shell companies are for Not Paying Taxes. Google, for example is a company, based in California, but because they are a Delaware Corporation, they then pay Delaware Taxes, which are much-much cheaper than the taxes you would normally pay inside California.
Delaware charges little to no tax on a company’s intangible assets. Intangible assets are those assets which only exist on paper. For example, Copyright, Trademark, etc. This is Icing on top of a Cake for IT companies who mainly have Intangible assets such as Patents and Copyrights.
None of this is technically illegal, but it surely has faced a lot of scrutiny.
Why exactly Delaware?
When there are number of other Tax Havens out there including Cayman Islands, why do corporations opt for Delaware?
Well, setting up companies in Delaware is the easiest when compared to other states in the US.
It takes not more than Hour and you could get your company registered in Delaware. You actually need to do more paperwork to register for a California Library Card then setting up your own company in Delaware.
By the time I would have finished writing this article, another company could have been registered in Delaware. A Piece of Cake, isn’t it?