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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

June 16 2011

21:15

Stories From the March on Blair Mountain - Part 1 The March

I arrived a few days early to headquarters in Marmet, WV with an overly large pack that threatened to topple me over with one slightly unbalanced step. A sleeping bag, multiple changes of clothes, a bottle of Listerine, and ample bug spray would have to last me through the long and arduous journey of marching 50 miles along highways careening through the West Virginian Appalachians.

Over the next week, hundreds walked along the path of the original 1921 miners who rose up against the tyrannous coal companies in an attempt to unionize. In the 2011 March on Blair Mountain, community leaders, union members, and conservationists rallied to save the historical labor icon of Blair Mountain, sentenced for destruction via mountaintop removal mining (MTR).  We marched to protest against MTR and to advocate for safer working conditions and sustainable jobs for West Virginians, whose economy and proud natural landscape have been eroded by greedy coal barons.<!--break-->
Back in 1921, during the battle of Blair mountain, as many as 10,000 coal miners risked their lives to stand up against coal operators by fighting for basic rights to unionize and demanding safer working conditions. Back then, coal barons exploited the miners and their families by forcing them to live in company towns were people were paid in the currency exclusive to the company. Union organizers were kept out by coal companies, which sent in hired spies to ensure the workers remained beholden to the company.

Any attempt to unionize was met with harassment, intimidation, and threat of job loss. Eventually this culminated in the largest labor uprising in US history, capped off by the deadly Battle of Blair Mountain. This uprising spearheaded the movement that would eventually lead to fair wages and fair working conditions across all job spectrums. While at one point Blair Mountain was listed on the national registry of historic places, a few years ago it was taken off due to pressure from the coal industry.

Today, King Coal still reigns in the West Virginian mountain ranges. You would never know of the grip the industry holds from the highway. The strip mining operations are purposefully hidden behind lush green mountainsides so that tourists passing through the state don’t see the devastation caused by the blasting. It’s an unfortunate well-known fact that if people do not see it, and if it’s not happening in their backyard, they are less likely to do anything about it. But the truth is, coal companies rule the roost, maintaining influence over the ranks of loyal workers to the local service industries they support, even the local authorities and courts. The industry’s iron grip on public opinion in West Virginia was palpable, especially as people arrived in town with the distinct goal of attempting to challenge it, even nonviolently.

While marchers this time around weren’t battling bullets like back in 1921, we were up against our own set of obstacles. In the week leading up to the start of the march, the coal industry started applying pressure from all sides. We were hearing rumors of local counter protesters getting ready to “stir up trouble”. There were reports that the march would be shut down on the first day by the police. Campsites that marchers intended to stay at were dropping out like flies because owners, despite being sympathetic to the cause, had to rescind their permission because of coal industry pressure.

Even when paid contracts were involved, owners refused to honor them out of fear of losing their jobs or other types of industry retaliation if they had let the protestors stay. We hadn’t even set foot on the ground before the powers that be in the area were trying to stop us. However, this wasn’t entirely unforeseen. King Coal wouldn’t be trying to stop us if they weren’t afraid of the potential impact we could have.

Despite intimidation tactics, marchers were unfazed and came in good spirits. An initial group of 200 people arrived, some all the way from Australia, some from the next town over, ready to set out on the perilous road and forge ahead despite the risks. Sure, protesting coal in West Virginia seemed to be the equivalent of walking into Mordor and flipping the bird to Sauron, but so long as there was good company, food, water, and porta potties, nothing could stop us.

Typically, we would march around 10 miles a day, trudging through 90-degree heat along narrow margins of highway road. Coal trucks came barreling past within a few inches of the marchers. There was singing and chanting throughout the line that precariously winded along the shoulder of the road, in some places offering only a foot of clearance from the traffic. Colorful signs were decorated to commemorate destroyed mountains and endangered communities threatened by mountaintop removal projects throughout the state. The first day was one of the longest days, marching around 11.5 miles, when our tired feet finally carried us to the campground we were supposed to stay at.

Counter protesters met the marchers with jeers and signs of their own. “Go Home Treehugger!” was one of the least colorful statements relayed by the group as they stood by the road and encouraged every passing car to honk in support of coal. As tensions rose, eventually the county commissioner was called out to officially declare us “not welcome” to camp, promptly followed by a police order that stated if we did not leave the park, everyone would be arrested.

Eventually all of our pre-reserved campsites would pull out due to coal industry pressure coming through different channels, whether families ties, community intimidation, or threat of job loss by the coal industry supporters. All the marchers would have to be transported back and forth each day from our one camping option to the next spot on the march, until we finally got into the town of Blair. We ended up having to spend the nights back at headquarters, and with more marchers arriving each day, the warehouse was becoming a little too cozy.

Over the next 4 days, marchers remained committed to finishing out the entire 50 miles. The atmosphere was always cheery and high-spirited, and the reaction from local citizens supporting the march was inspiring. There were accounts of people walking over an hour to the road or waiting several hours on their porch to see us pass by and wave. Others sat outside or rode past in cars to give the marchers the thumbs up or a high five.

One man was sitting at the end of his driveway on his riding lawnmower with a sign that simply read “Thank You” encircled by flowers.  We walked past a school along the route that showered marchers with a round of applause as we strolled by. They said that we were doing what they were not able to because of the potential consequences. Each day more marchers joined the line until it stretched so far, you couldn’t see the end around the corners.

The last day we finally marched into Blair and set up camp. I threw up my tent and exhaled in appreciation of finally having for the first time that week, four of my own walls.

Stay tuned for Part 2, when I’ll cover the exciting rally at the summit of Blair Mountain.

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