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August 03 2012

12:00

Delaware Tax Haven: The Other Shale Gas Industry Loophole

Most people think of downtown Houston, Texas as ground zero for the oil and gas industry. Houston, after all, serves as home base for corporate headquarters of oil and gas giants, including the likes of BP America, ConocoPhillips, and Shell Oil Company, to name a few.

Comparably speaking, few would think of Wilmington, Delaware in a similar vein. But perhaps they should, according to a recent New York Times investigative report by Leslie Wayne.

Wayne's story revealed that Delaware serves as what journalist Nicholas Shaxson calls a "Treasure Island" in his recent book by that namesake. It's an "onshore tax haven" and an even more robust one than the Caymen Islands, to boot.

The Delaware "Island" is heavilized utilized by oil and gas majors, all of which are part of the "two-thirds of the Fortune 500" corporations parking their money in The First State.

Delaware is an outlier in the way it does business,” David Brunori, a professor at George Washington Law School told The Times. “What it offers is an opportunity to game the system and do it legally.”

The numbers are astounding. "Over the last decade, the Delaware loophole has enabled corporations to reduce the taxes paid to other states by an estimated $9.5 billion," Wayne wrote

"More than 900,000 business entities choose Delaware as a location to incorporate," explained another report. "The number…exceeds Delaware's human population of 850,000."

Marcellus Shale Frackers Utilize the "Delaware Loophole" 

The New York Times story also demonstrated that the shale gas industry has become an expert at utilizing the "Delaware Loophole" tax haven to dodge taxes, just as it is a champion at dodging chemical fluid disclosure and other accountability to the Safe Drinking Water Act, thanks to the "Halliburton Loophole." The latter is explained in great detail in DeSmogBlog's "Fracking the Future."

Utilization of the "Delaware Loophole" is far from the story of a few bad apples gone astray for the industry. As Wayne explains, the use of this "onshore tax haven" is the norm.

More than 400 corporate subsidiaries linked to Marcellus Shale gas exploration have been registered in Delaware, most within the last four years, according to the Pennsylvania Budget and Policy Center, a nonprofit group based in Harrisburg that studies the state’s tax policy.

In 2004, the center estimated that the Delaware loophole had cost the state $400 million annually in lost revenue — and that was before the energy boom.

More than two-thirds of the companies in the Marcellus Shale Coalition, an industry alliance based in Pittsburgh, are registered to a single address: 1209 North Orange Street, according to the center.

These fiscal figures, as Wayne points out, predate the ongoing shale gas "Gold Rush" in the Marcellus. SEIU of Pennsylvania has calculated $550 million/year in lost tax revenue in the state from the shale gas industry due to the loophole.

The Pennsylvania House of Representatives set out to tackle the "Delaware Loophole" quagmire in the spring of 2012, but merely offered half-measure legislation that would have allowed corporations - including the frackers - to continue gaming the system. Coryn S. Wolk of the activist group Protecting Our Waters summarized the bill in a recent post:

In March, 2012, the Pennsylvania House of Representatives created a bipartisan bill, HB 2150, aimed at closing corporate tax loopholes. However, as the Pennsylvania Budget and Policy Center noted in their detailed opposition to the bill, the bill would have cost Pennsylvania more money by soothing corporations with major tax cuts and leaving the loopholes accessible to any clever accountant.

Tax cheating in Delaware goes far above and beyond the Marcellus Shale. All of the oil and gas majors, with operations around the world, take full advantage of all Delaware has to offer.

"Piping Profits"

If things in this sphere were only limited to shale gas companies operating in the Marcellus Shale, the battle would seem big. Big, but not insurmountable.

Yet, as the Norway-based NGOPublish What You Pay points out in a recent report titled, "Piping profits: the secret world of oil, gas and mining giants," the game is more rigged than most would like to admit.

How rigged? Overwhelmingly so.

The report shows that ConocoPhillips, Chevron, and ExxonMobil have 439 out of their combined 783 subsidiaries located in well-known tax havens around the world, including in Delaware. All three companies maintain fracking operations, as well, meaning they benefit from both the Halliburton and Delaware Loopholes.

Adding BP and Shell into the mix, Publish What You Pay revealed that the five majors have 749 tax haven subsidiaries located in Delaware out of a grand total of 3,632 global tax haven subsidiaries. This amounts to 20.6-percent of them, to be precise.

These figures moved Publish What You Pay's Executive Director, Mona Thowsen, to conclude, “What this study shows is that the extractive industry ownership structure and its huge use of secrecy jurisdictions may work against the urgent need to reduce corruption and aggressive tax avoidance in this sector."

Tax Justice Network: $21-$32 Trillion Parked in Offshore Accounts

A recent lengthy report titled "The Price of Offshore Revisited" by the Tax Justice Network reveals just how big of a problem tax havens are on a global scale, reaching far beyond Delaware's boundaries.

As Democracy Now! explained,

[The] new report…reveals how wealthy individuals and their families have between $21 and $32 trillion of hidden financial assets around the world in what are known as offshore accounts or tax havens. The conservative estimate of $21 trillion—conservative estimate—is as much money as the entire annual economic output of the United States and Japan combined. The actual sums could be higher because the study only deals with financial wealth deposited in bank and investment accounts, and not other assets such as property and yachts.

The inquiry…is being touted as the most comprehensive report ever on the "offshore economy." 

The Democracy Now! interview below is worth watching on the whole, as oil and gas industry "offshoring" is but the tip of the iceberg.

Photo CreditGunnar Pippel | ShutterStock

Exhaustive Study Finds Global Elite

March 21 2011

20:30

Gas Industry Working Overtime to Smother Revived FRAC Act Efforts To Rein In Hydraulic Fracturing

Last week, US Senators Robert Casey (D-PA) and Frank Lautenberg (D-NJ) reintroduced legislation to the Senate that would close the oversight gap that the gas industry has taken full advantage of since 2005. The “Fracturing Responsibility and Awareness of Chemicals Act,” commonly known as the FRAC Act, would close the Halliburton Loophole in Dick Cheney’s infamous 2005 Energy Policy Act, which exempted hydraulic fracturing from the auspices of the Safe Drinking Water Act (SDWA).

Hydraulic fracturing is used in 90% of all unconventional natural gas wells in the U.S. and involves the injection of millions of gallons of water, sand and dangerous chemicals into the ground. The bill would also require that the natural gas industry publicly disclose the chemicals they use to drill for unconventional gas. These chemicals, including potent cancer-causing agents, are protected as industry trade secrets.

The FRAC Act was originally introduced as a set of twin bills to the House and Senate in 2009 but died in the last session of Congress. According to new supporter Senator Frank Lautenberg, the FRAC Act will give the EPA the necessary backing to, at the very least, properly investigate and assess the risks associated with hydraulic fracturing.

The industry’s aggressive lobbying campaign against the FRAC Act is part of a larger agenda to limit federal oversight of gas drilling. The legal void created by the Energy Policy Act in 2005 essentially crippled the Environmental Protection Agency's (EPA) ability to properly monitor the boom in gas fracking activity, especially the potentially serious threat to drinking water supplies. A long history of industry pressure on EPA scientists is also present on this issue, leading to the narrowing of scope in the EPA’s investigations and the elimination of critical findings when it comes to certain fracking threats. <!--break-->

As a result of the Halliburton Loophole, the states are left to monitor the gas industry's rapidly evolving drilling practices themselves, with few federal standards in place to safeguard public health and water supplies.  A growing number of communities impacted by the gas industry’s fracking practices consider this reliance on state agencies a risky gamble.  In many states, the state oil and gas commission handles both the oversight and promotion of the industry, and as one recent report noted, “the primary mission of these agencies has been to facilitate natural gas extraction and increase revenues for the states.”  

The gas industry has responded to the proposed legislation with a misleading advertising and lobbying campaign, attempting to pressure lawmakers to keep oversight at the state level and limit federal participation. 

Industry-sponsored reports have praised the regulatory oversight of state commissions, and lobby groups have suggested that federal engagement would be bad for the environment.

Among the favorite scare tactics employed by the gas industry is the suggestion that federal involvement would mean millions in lost state revenue, further unemployment and compromised energy security. Industry lobbying efforts have so far succeeded in stalling any momentum towards the implementation of much-needed federal standards for fracking.

But as the recent New York Times’ “Drilling Down” series on gas drilling shows, the industry is in serious need of more thorough federal oversight.  According to these reports, the states are failing to monitor radioactive drilling wastes, much less ensure their proper disposal. As a result, the Times notes how the wastes can end up back in streams and rivers that source the drinking water supply. A single gas well can produce over a million gallons of radioactive waste water contaminated with cancer-causing agents, posing a threat to drinking water and health if not properly handled and disposed. 

The FRAC Act is one crucial step in the long journey to proper accountability for all risky practices in the gas industry. But powerful gas industry lobbying forces will work to derail it. In fact, they already are. 

Lee Fuller, executive director of Energy in Depth, the most vocal industry front group, was quick to attack the reintroduction of the FRAC Act, saying the bill is based on “fundamentally incorrect information.” EID insists that hydraulic fracturing was never regulated under the Safe Drinking Water Act (SDWA), so the legislative attempt to “restore” this regulation is misguided. Yet the process was always regulated by the Underground Injection Control (UIC) program of the SDWA until language inserted into the 2005 Energy Policy Act excluded the underground injection of fluids for the sake of oil and gas extraction.  

This isn’t the only EID claim intended to confuse the public, as DeSmogBlog recently revealed

While Energy In Depth suggests that hydraulic fracturing has “become a victim of its own success,” the citizens whose water supplies and health have been put in jeopardy would beg to differ. 

The industry is still parroting the same refrain: that ‘no proven instances of water contamination have been directly linked to hydraulic fracturing.’ Yet with mounting instances of water contamination occurring across America, all this statement reflects is the near impossibility of bringing this cavalier industry to account. 

Congress must work quickly to pass the FRAC Act and to safeguard the public from the gas industry’s fracking mess.

 

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