In the wake of the release of the Panama Papers, which exposed financial dealings of some of the world's wealthiest people, much has been made in the media and on the U.S. presidential campaign trail about making sure everyone is paying their "fair share", and emphatically calling for improving transparency around how corporations and individuals handle their money.
One topic that will only continue to receive attention as this topic moves along, is the state of Delaware and its perceived status as a U.S. tax shelter. According to Bloomberg, the state has about 1.1 million business entities, and one single building located at Wilmington's 1209 Orange Street is the home address of 285,000 companies including Alphabet (Google), Ford Motor Co., and Wal-Mart.
Incidentally, a few shady characters have been linked to having ties to shell companies in Delaware, "El Chapo" being one of them. Oh, and then there's a few more people of note, such as presidential candidates Hillary Clinton and Donald Trump, each of whom have businesses incorporated in the state.
Delaware offers companies an easy and inexpensive path to incorporating, and is known for its very business friendly statutes and court system. It's also a potential magnet for those who are perhaps looking to game the income tax system by setting up a shell corporation there. Recall that Chevron was served a $269 million tax bill for structuring inter-company loans between an Australian company, and one that incorporated in Delaware. The loans were issued with ridiculous interest rates in order to lower taxable income.
As pressure from mounts from the outside asking Delaware to reform some of its laws around incorporation and business in general, there is one good reason why the state will choose to leave everything at the status quo if at all possible.
Actually make that one billion good reasons to do so. In 2015, Delaware registerd more than 480 companies a day, leading to registration fees provide more than $1 billion in annual state revenue.
In spite of a lot of rhetoric, there is little little chance that Delaware is motivated enough to make any meaningful changes regarding how the state chooses to do business, save one thing of course:
"There's little indication that'll change. I would not hold my breath waiting unless the Panama Papers and U.S. corporations can be directly linked to terrorist financing. U.S. policy could change and change quickly." said J. Richard Harvey, a former tax official at the IRS and Treasury Department.
And in case that something does change and Delaware is not longer America's favorite onshore tax shelter, there is always Nevada, and one very specific corporation that is more than willing to help any US (or international) clients with their tax sheltering needs: Rothschild, whose Andrew Penney is always looking for new business.