Delaware's $1 Billion Incorporation Machine

David Kocieniewski
27 April 2016

Chevron Corp. used a shell company in a tax haven to escape hundreds of millions of dollars in Australian taxes, according to a 2015 court ruling. The subsidiary, which allowed Chevron to eliminate Australian taxes on $1.7 billion in profit earned there, wasn’t secreted away on a remote tropical island -- it was set up in the very mundane locale where corporate secrecy was born: Delaware.

For more than a century, Delaware has lured companies to file incorporation papers there by offering a specialized court system, laws that allow for avoiding other states’ taxes and a registration system that requires little public disclosure. Today, two-thirds of the Fortune 500 companies and 60 percent of U.S. hedge funds are registered there. That success has become a template for tax havens from Singapore to the Cayman Islands to Panama -- where a recent leak of millions of documents has revealed the questionable uses of many shell companies and put financial secrecy in headlines globally.

Delaware still stands out for its emphasis on privacy, which garnered for it the label of world’s most secretive jurisdiction twice over the past decade -- once by the Tax Justice Network and another by National Geographic magazine. While most businesses registered there are legitimate, critics say the secrecy provides cover for some shell companies owned by miscreants, from corrupt dictators to money launderers, drug dealers, tax cheats and arms merchants. Yet the business of registering businesses is important to Delaware’s economy and state revenue, and residents and leaders are quick to defend it.

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