CGD Research Fellow Alex Cobham is quoted in a FT article about taxes.
Delaware has made a name for itself by becoming the prime spot for incorporation on American shores.
Registration fees generate about one quarter of the state’s annual $3.6bn budget. The vast and respectable bulk of large US businesses are registered in Delaware and so are many smaller groups – wooed by its swift, sophisticated and predictable court system, which is a well-known arbiter of shareholder disputes.
But Delaware - along with other states such as Nevada and Wyoming that have similar rules - also houses a plethora of shell companies, in some cases which can facilitate illicit activity ranging from tax evasion to money laundering to healthcare fraud. For these companies, the attraction of Delaware is the ease with which companies and partnerships can set up shop there and the fact that not too many questions are asked.Indeed, what happens in Delaware puts the US at odds with much of G8 colleagues. “In the G8 [tax avoidance] agenda, the US is more or less up with the leading group in terms of its own standards, except for this one,” says Alex Cobham, a research fellow at the Center for Global Development. “Consistently you see some of the most secretive jurisdictions, particularly in Europe, pointing their fingers at the US and saying ‘this isn’t fair’.”
Mr Cobham fears the state of play in Delaware makes it much easier to evade any kind of scrutiny. “Not only are the penalties for not being able to produce that information fairly small but also the chances of it being up to date if it is produced are small. And the chances of a tip-off being made before it’s produced and the company simply migrating to Panama or elsewhere are reasonably large,” he adds.