Corporate transparency The disappearing subsidiary

THE map below shows the change between 2011 and 2012 in the number of subsidiaries disclosed by listed American companies. The data were provided to The Economist by Jeff Gramlich of the Hoops Institute at Washington State University. Only those firms that had reported at least ten subsidiaries located in tax havens in 2011, and that subsequently reduced the number of haven subsidiaries by more than 50%, were included. The fall in the numbers of subsidiaries can partly be explained by a general drop in the use of tax havens, but Mr Gramlich also attributes the shift to companies reclassifying their subsidiaries as “not significant”, a category that does not need to be disclosed.

A couple of notes on the data. First, countries are defined as tax havens if they are listed in the proposed Stop Tax Havens Abuse Act of 2007. Second, the Securities and Exchange Commission requires firms in the relevant filing to list the subsidiary name, followed by the country name in parentheses. A subsidiary called “ABC Bermuda, LLC. (Bermuda),” would be counted twice in each year as a result.