Comment Rescue: Delaware Banking Secrecy

Allan Loudell, on yesterday’s report about Delaware’s ranking as the most secretive banking system in the world:

Comment by Allan Loudell on 2 November 2009 at 9:25 am:

I forward John Manifold’s comments to John Christensen, director of the Tax Justice Network in London, and one of the authors of these rankings.

I was curious what John Christensen would say in rebuttal.

Here’s the reply J. Christensen just emailed to me:

“The index is not ranking tax havens. It ranks financial secrecy. It ranks the USA top of the index, and identifies Delaware as a state of particular concern because of the lack of transparency on corporate ownership and accounts. Delaware is not alone in this respect, but it is a major centre for incorporation.

The USA does not have effective tax information exchange treaties with the majority of countries.”

I’m not sure John Christensen effectively replied to all of John Manifold’s points (of course, Christensen finds himself besieged with emails today from all over the world!), but the overall rebuttal seems to suggest that if the USA doesn’t effectively convey income and tax details to other countries because of the lack of “effective tax information exchange treaties with the majority of countries”, Delaware – by virtue of its position – rises to the top of the heap!

I hope to interview Christensen or someone else from his organization during a segment of my Noon news hour today!

Allan Loudell
1150 A.M.—WDEL Radio & http://www.wdel.com

John Manifold’s comment:

Comment by John Manifold on 1 November 2009 at 6:53 pm:

This is a screwy article, in many ways.

1. Delaware is not a “tax haven,” nor does it have the secrecy that has brought Switzerland into disrepute. All dividends and interest from Delaware corporations are subject to U.S. income tax and reportable as such, just like corporations in all other juridisdictions.

2. Delaware “does not require corporations to be physically present.” Neither does any other state.

3. Delaware “does not tax profits realized outside the state.” Nor should it. Instead, it collects a hefty franchise tax from large corporations, and a nice annual fee from small ones. Large corporations which actually do business here pay a robust 8.7 percent tax on their net profits from Delaware operations.

4. This ranking is not based on actual tax avoidance but on “whether a jurisdiction obtains beneficial ownership information about companies” – in other words, whether you and I can go to delaware.gov and learn the owners of any corporation, partnership or LLC registered in Delaware. As Prof. Larry Hamermesh notes, this is not done in the U.S.

5. From the original article: “‘While the U.S. has been jumping up and down and saying ‘Aha, bad, wicked Swiss banks,’ the U.S. is doing exactly the same things as far as non-resident bank account holders,’” said Sarah Lewis, executive director of the group, based in the U.K.” This is nuts. All U.S. banks report all interest payments [exceeding $10 in any year] to the IRS. If the account is held by a foreigner, the information is likely to be shared with the foreigner’s home country, under the tax treaties with most U.S. trading partners.

How does this benefit the citizens of Delaware? It means that we pay just 70 percent of the cost of state government. It means that businesses throughout the country are funding our schools, roads and social services.

So, listen at noon to learn more about this subject.