Far from the mountains of Switzerland or the beaches of the Caribbean, South Dakota has become a poster child for the American states that have loosened their tax laws to attract wealthy investors.
“Over the past decade, South Dakota, Nevada and more than a dozen other US states have transformed themselves into leaders in the business of peddling financial secrecy,” according to the vast investigation into offshore tax havens released this week known as the “Pandora Papers”.
With secrecy and systems that allow clients to evade tax or pay nothing during an inheritance, these states are locked in fierce competition to attract funds from investors at home and abroad.
“Almost half the states are in the competition,” said Chuck Collins of the Institute for Policy Studies, one of the experts who provided background to journalists who worked on the Pandora Papers, told AFP.
He cited, among others, “Alaska, Wyoming, and Nevada.”
“They tend to be small states,” he said, where a service industry geared toward finance “will have a lot of power.”
If a client needs to create an anonymous shell company that brings together their international activities so as not to pay tax, then Delaware, where President Joe Biden served as senator for 36 years, “is kind of the premier tax haven state”
“And if you want to create a trust, there are states like South Dakota that have changed their laws to allow a trust to live sometimes forever, [or] at least a century,” said Collins.
By offering these financial companies a lifespan of 100 years, or longer, the assets included in them can be passed on from generation to generation, without having to pay part of them in estate taxes during an inheritance.
South Dakota, a rural northern-central state famous for the faces of US presidents carved in the rock of Mount Rushmore, is a pioneer in the field, having used financial windfalls to attract investors in the 1970s and 1980s when its economy was at its worst.
In 1981 the state began authorizing loans at any interest rate in order to attract the bank card business of Citibank, and the jobs that went with it.
Then, “year after year in South Dakota, state lawmakers have approved legislation drafted by trust industry insiders,” the Pandora Papers said.
Tax law firms based in Sioux Falls now sing the praises on their websites of these laws, their discretion, the low taxes, and the system governing trusts.
“Customer assets in South Dakota trusts have more than quadrupled over the past decade to $360 billion,” said the Pandora Papers.
Dozens of other states have followed suit, to varying degrees, to the extent, to the point where “by 2020, 17 of the world’s 20 least-restrictive jurisdictions for trusts were American states, according to a study by Israeli academic Adam Hofri-Winogradow,” the investigation said.
The US states also benefited when the Bahamas passed a law at the end of 2018 which required the real identity of the owners of certain companies and trusts to be declared. That is why the United States came in 25th in the 2020 ranking of tax havens compiled by the Tax Justice Network, an NGO watchdog. In terms purely of financial opacity, the world’s leading economic power comes in a global second, just behind the Cayman Islands.
The United States hosts nearly a quarter (21.37 percent) of the global market for financial services intended for non-residents, the NGO said. The Biden administration is leading the charge among major powers for tax harmonization between countries. White House spokeswoman Jen Psaki told reporters that US president “is committed to bringing additional transparency to ... the US and international financial systems.”—AFP