[flagged]
But make it illegal first. Make sure it's a "loophole" as opposed to what it currently appears to be: a specifically crafted loophole that over half the Fortune 500 can fit through.
There is no "loophole".
It is perfectly legitimate for a company to be incorporated in Delaware and to register as a foreign corporation in other states where it has a presence/does business. You can pick any random Fortune 500 company and look up its registrations in the states where it does business.
This is not remotely similar to setting up a shell LLC in Montana, purchasing a vehicle through it in Montana to avoid sales tax in another state, registering it in Montana and then physically moving it to another state without changing the registration and paying the use tax as required by law in that state.
The crime here is not about setting up a Montana LLC. Nothing about the Montana LLC made this car tax evasion scheme even arguably legal.
It may be legal, but it's rather more questionable if it's legitimate: the latter is a value statement in casual language, even if legal jargon would be more precise.
If I do business with people in all states of the USA*, there should not be any particular state which attracts a majority of big (and everything bigger than "small") business registrations: other than network effects (e.g. everyone else does it so the corporate lawyers are all right there), anything pushing so many businesses to choose one specific state, be that for taxation or for a court system that presumes more in favour of businesses than elsewhere, this creates an uneven playing field for other states and who gets what powers of enforcement for business (/consumer) laws they pass.
Like, people here argue the EU is "anti-business": well, the American-registered factories (Tesla) and American-owned IT company offices (Apple, Microsoft, Google, etc.) are still here, and the shares are publicly traded so even us Europeans can own them, but they count as "American" because of where they (/their parent companies) are registered. Even Google Deep Mind (HQ: London) gets called "American" due to the ownership structure.
* A similar argument applies to the EU
> this creates an uneven playing field for other states and who gets what powers of enforcement for business (/consumer) laws they pass.
Setting up your company in Delaware does not mean that you are exempt from the business and consumer protection laws in other states.
If you're a Delaware company and you violate consumer protection laws in California, violate environmental protection laws in Colorado, defraud investors in Maryland, etc., the relevant authorities/powers in those states will all be able to exercise jurisdiction over you.
Being incorporated in Delaware does not mean you have free reign to do whatever you want in any other state and have disputes over your actions adjudicated in Delaware.
For example, if I own a 2014 Nissan Versa and I register it in Colorado in January 2020 and then I need to move to Texas in August, I won't get Texas plates immediately when I get to Texas. I've "paid up" in Colorado for as long as my tags are good. I shouldn't have to get a Texas license plate until my existing one expires. However, I will eventually get Texas tags, just a few months too late.
Also I don't mind people going to Montana and buying luxury cars there if the cars actually stay in Montana. However, there should be scrutiny on these expensive toys more than regular cars we need to live because we don't have a decent transit story.
I feel like intent and magnitude should play a big role in legislation.
If you have a Delaware corporation doing business in, say, California, and you refuse to register as a foreign corporation in California and follow the laws applicable to businesses in California, that is a different matter.
The Delaware corporation is perfectly legal; the failing to follow California's laws when your company is doing business there isn't.
Over half the Fortune 500 is incorporated in Delaware. Countless private companies are incorporated in Delaware and other states, with their owners properly registering as foreign corporations and paying applicable taxes and fees in second states where they do business.
The person in question wasn't arrested for buying and registering a car in Montana. He was arrested for not paying the tax he owed on it under Tennessee law after he brought it into Tennessee. The law there states that sales or use tax is owed on a vehicle if the vehicle is primarily housed and operated in the state.
Under Tennessee law, you are also required to change an out-of-state vehicle's registration to Tennessee if it's brought into the state and operated there for more than 30 days.
So, in summary, you can buy a car in Montana and pay no sales tax and it's not a crime. It becomes a crime when you use the Montana purchase to evade paying taxes in another state where you actually use and house the car.
A) They can be used relatively easily (compared to other states) as shell companies because you do not have to identify yourself publicly when minting the company. B) The legal process corporations can choose to go through in Delaware are extremely advantageous to corporations (look up The Court of Chancery)
But it's not clear what use case you have in mind, and I think your comment deserves some qualification:
1. Even if disclosure of your name and personal details isn't required to set up a Delaware LLC, almost everyone is going to be identified anyway: through the registered agent, the EIN you obtain from the IRS, your bank. Sure, if you have a team of lawyers and layers of layers of shell companies across multiple jurisdictions, it's trivially easy to keep your ownership pretty effectively hidden but the minute you have any assets in or moving through the US, it's trivially easy for the authorities to figure out who you are once they have a reason to.
2. The legal "advantages" of Delaware basically aren't relevant to single-member/closely-held companies because you're not going to have any disputes with yourself over the corporate structure. If your Delaware entity is doing business in other states, you are exposed to the laws of those states as far as your business operations are concerned.
And yes, the legal process is advantageous in DE because the courts have a massive body of prior law. Decisions are made quickly. It doesn’t mean the courts routinely rule for corporations.
Why do you believe that?
Does that mean a race to the bottom? Yes.
Bit dont worry, the real bottom is when they would actually start bidding against each other with tax incentives. Oh wait...
If you're an American company selling your stuff to German users, are you doing business in Germany? What if you don't have a German translation of your site, don't accept Germany-specific payment methods and don't advertise in Germany-specific channels, but still ship there? What if your products are delivered electronically, and you don't apply any IP blocks? What if you IP block Germany, but don't block VPN use? What if you do block VPN use, but still process personal data of German citizens (even without giving them access to your systems)? What if you do everything in your power to stop German users from using your site, but the site is free and VPN detection isn't 100% reliable, so some users do slip through?
Just to be clear, there are no good answers here, and the law (and international law in particular) is wholly unprepared for the realities of the internet.
Shipping there demonstrates willingness, that is the sales contract (shipping to the customer address), advertising or localisation don't matter since those aren't a "contract" but the final sale with shipment is. It's quite clear-cut.
> What if you do everything in your power to stop German users from using your site, but the site is free and VPN detection isn't 100% reliable, so some users do slip through?
If you can demonstrate that you had active safeguards to not allow someone in Germany to use your product, and these users had to find workarounds to access it, you are protected.
There are good answers: if you willingly delivery a service or a product to a resident of a country you are subject to its laws.
The law in most countries, including Germany, is very clear: if you're going to sell your products or services to individuals and businesses in those countries, you become subject to the laws applicable to that type of transaction in those countries.
If you don't want to be subject to German law, don't sell products or services to people in Germany.
This could give you plausible deniability perhaps, if you do want users from Germany, but don’t want to deal with German laws, and are willing to argue in the German court that you didn’t know these users are from Germany because they’ve said “I’m not from Germany, pinky promise”. (Or if you have no intention of ever being in Germany and are sure that Germany can’t get to your bank accounts to fine you.)
So what is reasonable to request from the service provider here? Checking billing address and IP is reasonable, but beyond that? Maybe bank account? But in Europe a German can have a bank account in France, it is not even a big deal. Maybe taxation should follow bank accounts? I have an account in Luxembourg, so I'm set ;)
Yes, and the VAT must be paid. You'd need to have some EU member state registration to do so (and still pay the correct VAT-rate, it's different per country). If it's business-to-business it'd be somewhat different.
>but still ship there
The local folks will have to customs-clear it themselves, pay the import tax AND the VAT. It's doable but very consumer unfriendly and likely won't be doing much business at all.
With the regards to topic - the tax is still very much paid.
But I was also never a fan of using one problem to justify not going after another. We ought to be able to walk and chew gum at the same time.
Someone who does not pay their taxes, be it a legal or illegal loophole, does not pay their fair share within the society they live in. It is not us people against the state, it is us people who are the state.
If that's not the reddest of red flags, I don't know what is.
It is, however, off-topic for this thread.