Why is Panama a tax haven and what is a shell corporation?



Why is Panama a tax haven and what is a shell corporation?

In: Economics

A shell corporation is a company that only exists on paper. No employees, no property, no sales, just some paperwork filed somewhere that says XYZ Corp is a registered company.

Shell companies can be used to conceal the ownership of certain assets. Say I’m rich and I don’t want to pay taxes on the things I own. I can form a bunch of shell companies registered in countries that aren’t likely to cooperate with the IRS, and then those companies own my assets, and I own those companies through a confusing string of 50 or so shell corps. Now it becomes really difficult to prove what I actually own if anyone wants to tax me.

Many countries operate as tax havens. They encourage major companies and rich individuals to move their money there, in exchange for having extremely low (or no) taxes and being willing to conceal assets. The benefits of attracting a huge company to your small nation, even if its only on paper, can be huge. You take a small percentage that may still be in the billions, and the company gets to dodge the much higher taxes of its home country.

You know how when your dad buys you a bag of M&M’s when you’re shopping but then while you’re driving home eating your candy he keeps sticking his hand into the back seat for some the candy he bought you? That’s normal taxes. A tax haven is like having a car (Panama) where for some reason he never does that, just lets you eat it all yourself.

A shell corporation is when he buys you the candy but then you hide it in the arm rest so he doesn’t see you eat it and therefore doesn’t ask for any.