Delaware

=Delaware=

Delaware is the second smallest state in the US, located on the East coast. As Delaware is on the East coast it is situated in the Eastern time zone: UTC -5/-4. Delaware is the 6th densest state in the US with its 917,092 inhabitants. With just below 1 million inhabitants Delaware is ranked as the 45th biggest state in the US, measured by population. The capital of Delaware is Dover, the largest city is Wilmington. Delaware boarder with Pennsylvania, Maryland and New Jersey. Delawares boarder together with Pennsylvania is quite interesting as it is an arc with its center of the court house in the city of New Castle. media type="custom" key="24588554" align="right"

Delaware as a tax haven
However Delaware is not interesting for Forbes 500 companies because of its funny shape of its boarders.Delaware is more known for attracting shell companies due to favorable tax legislation. According to a New York Times article written in 2012, 1209 North Orange Street, Wilmington Delaware was the legal address for no more than 285,000 different businesses. The businesses included are global corporations with operations all over the globe such as; Coca-Cola, Ford, Google, JPMorgan Chase. According to Dyreng, Lindsey and Thornock "Delaware is, by far, the most common state of parent incorporation among publicly traded U.S enterprises" Dyreng, Lindsey and Thornock also concluded that Delaware is a domestic tax haven, and that the benefits that the companies get through the favorable legislation comes through franchise and other costs that are deductible in other states. The Financial Secrecy Index added USA to their 2009 listing, highlighting Delawares role as a tax haven. Companies do only pay tax if they have operations in Delaware, therefore most of the companies only pay a "franchise" tax is for most companies a maximum 110 $ per year. The requirement is to have a registered agent, representing in Delaware. This however do not require visits to Delaware and the company office can itself be located anywhere.

Common tax planning structure in Delaware
Passive Investment Company (PIC) or Delaware Holding Company. Normally the tax rate in Delaware is 8.7%, which is quite high compared to other states. When one want to avoid the tax in Delaware, the company will establish a subsidiary in Delaware, transfer intangible assets to the subsidiary and after this pay deductible royalty fees to the subsidiary from the mother company that is based in the high-tax state. Through this the taxes will be deducted and only the small franchise tax will be applicable. Other states are familiar with these strategies and are trying to collect taxes at their own jurisdiction. Sometimes they even make it.

Examples of court cases in Delaware
Worldcom's Delaware PIC strategy was a total disaster. The company ended up in court and had to pay unpaid taxes and also had to answer charges of fraud. Worldcom traded assets, however never paying actual costs in reality. Also ToysRus tried to avoid taxes,and they created a successful structure. It was successful until there was found out that ToysRus also had business in Delaware, thus creating business that tax is applicable on. The taxation strategy is technical and therefore it might be good that the structure of the organization is designed by somebody with knowledge. The requirements are constantly updated as other states and countries try to get their share of the taxes. Therefore many companies have been investigated and companies that have created bad organizations have been ruled to pay the taxes created elsewhere too.