Shell corporation

For the oil company, see Royal Dutch Shell.

A shell corporation (aka International Business Corporations - IBCs -, Personal Investment Companies - PICs -, front companies or "mailbox" companies) is defined in Barron's Finance & Investment Handbook as "a company that is incorporated but has no significant assets or operations. Shell corporations are not in themselves illegal, and they may have legitimate business purposes. However, they are a main component of underground economy, especially those based in tax havens.

A classic tax evasion operation, called transfer pricing, is based on the buying and selling through tax haven shell companies to disguise true profits. The firm does its international operations through this shell corporation, thus not having to report to its country the sums involved, avoiding any taxes. Oxfam International calculates that the flux of money flowing out from developing countries and deposited in tax havens at $50 billion a year - nearly the size of the $57 billion annual global aid budget, of which $35 billion is evaded by foreign corporations, often through transfer pricing ^[1].

Purposes

Such corporations may be formed for several purposes:

• Legally, to obtain financing prior to starting operations.
• Fraudulently, as fronts to conceal tax evasion schemes.
• Money laundering
• Tax avoidance, taking advantage of the existence of 250 free zones and tax havens, 95% of which are former British, French, Spanish, Dutch or U.S. colonies or concessions that remain dependent on the former colonial powers.

See also

• Transparency (market)

Endnotes

1. ^ "Offshore banking, the secret threat to America". Hound Dogs. 2003.

See also

• Holding company
• Front organization