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Post Further Thoughts on Panama Papers
Created by John Eipper on 04/25/16 4:06 AM

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Further Thoughts on Panama Papers (José Ignacio Soler, Venezuela, 04/25/16 4:06 am)

When commenting on my post about the Panama Papers (21 April), John E asked a couple of questions.

First, he asked about Delaware as a tax haven within the US.

It might be difficult to answer this precisely. I expected someone else with more expertise on the subject to give an answer, but I guess it might perhaps depend on who you ask and the definition of tax haven.

According to the Organization for the Cooperation and Economic Development, Delaware is not a tax haven strictly speaking, because it does not fully fit their criteria. However, according to other definitions and critics, even in the USA, it is.

Apparently, the point with Delaware is that it offers legal and tax advantages to large corporations, in term of legal jurisdictional requirements, confidentiality and tax exemptions. For instance, "intangible assets" such as royalty payments are not taxable as well as trademarks, leases, copyrights or interest income. In summary, it seems to be a perfect place for tax avoidance, tax planning and finance engineering.

Yet it seems Delaware might be not a place recommended for tax evasion, money laundering or any other corrupt financial activities. One thing is to have shell companies registered in the state, another is to have an uncontrolled financial or banking system that allows such illegal activities.

However, the system apparently has some weaknesses, according to several financial and corruption scandals that have been associated with Delaware. For instance, the case of V. Bout, a Russian arms dealer, used two Delaware addresses. In April 2012, he was sentenced to 25 years in prison. Another case involved J. Abramoff, a Washington lobbyist jailed on corruption charges; he used a Delaware corporation to hide millions.

You can have companies in Delaware that have no US bank accounts, few requirements for documentation, and a good deal of anonymity. Often no one knows who owns the corporations. Among the US states, Delaware has the least transparency and the most secrecy. I understand many critics in the US say that it serves as a domestic tax haven, like the Cayman Islands, which offers a similar level of tax avoidance.

Regarding John's second question, "have the Panama Papers received a lot of attention in Venezuela?" The answer is--no.

Venezuelans have a long tradition of hidden millions, even billions, of cash or assets in hard currencies, sometimes the product of "honest" work, in companies and banks offshore. Often this is for reasons that have more to do with protecting them from legal risk or systematic currency devaluations than with tax evasion. On the other hand, often it is the product of traditional corruption activities among high government officials, military or private sector businessmen. In the present regime in particular, it is estimated that over 300,000 million US dollars are hidden in many of the tax havens around the world.

The public is not surprised by the Panama Papers. They are much concerned with the day-to-day survival to pay much attention to the subject.

JE comments:  I have Delaware in my DNA (both my parents were born there), but I'm all about transparency.  Or not...?  All I can say is that I appreciate Delaware's advantages as a tax haven for shopping.

I often think of José Ignacio Soler when I read of the daily trials of the Venezuelan people.  We're wishing you the best, Nacho!  What is the latest from Caracas?

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