Closing Tax Loopholes is Great, But Tackling Anonymous Companies is Just as Important

January 21st, 2015

President Obama wants to end the loopholes that allow companies to shift billions of dollars in profits offshore.

Or he at least said so much during his State of the Union address last night:

As Americans, we don’t mind paying our fair share of taxes, as long as everybody else does, too. But for far too long, lobbyists have rigged the tax code with loopholes that let some corporations pay nothing while others pay full freight.

This year, we have an opportunity to change that. Let’s close loopholes so we stop rewarding companies that keep profits abroad, and reward those that invest in America.

The topic of moving money to low tax jurisdictions has become a hotly debated issue over the last few months, following the LuxLeaks scandal that brought light to hundreds of secret tax arrangements between multinational corporations and Luxembourg. By artificially moving profits to an offshore jurisdiction, corporations can avoid paying higher tax rates. Many of the tax deals highlighted in the LuxLeaks scandal meant that corporations were paying as little as 1% on a substantial portion of their profits.


President Obama also mentioned those behind the financial system that proliferate the movement of money, and pointed out (correctly) the unfortunate truth that the more accountants you can buy will simply expand the number of places where you can move your money and often lower the amount you pay in taxes.

From the speech:

Let’s simplify the system and let a small business owner file based on her actual bank statement, instead of the number of accountants she can afford.

This last statement is quite important. President Obama hints at one of the most obvious, yet undiscussed, parts of the financial system: the enablers of tax evasion and avoidance. While he may be talking about them in the context of tax loopholes, the same willing set of bankers, accountants, and lawyers help fuel illicit financial flows. But alongside these enablers is perhaps the United States’ biggest secrecy export: anonymous companies.

From Nevada to Wyoming, and perennial powerhouses like Delaware, the U.S. is one of the easiest places in the world to set up an anonymous shell company. Whether you’re an arms dealer, tax evader, or kleptocrat, shell companies that don’t track the real owner behind them serve as a perfect curtain to hide behind. A World Bank report revealed that more than 70% of large scale corruption cases of the last 30 years involved anonymous companies.

Anonymous companies started in the U.S. aren’t just a problem for American citizens, either; they are a global problem for the simple fact that they can be used by anyone. So, while it was promising that President Obama mentioned tax loopholes in his address last night, it’s vital that we also address the the corporate secrecy that is alive and well within the borders of the U.S.

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Written by Christian Freymeyer

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