Sunday, 10 April 2016

Different uses of the term ‘letterbox companies’

The news reporting of the ‘Panama papers’ frequently mentions ‘letterbox companies’ (eg, see a simple Google news search). In recent academic research, the same term has also been used in a number of publications (see Google scholar search, starting 2010). But there is the potential of misunderstandings as there are at least two different types of letterbox companies, let’s call them:
  • Type A: companies that do business in one country, but are incorporated with only a ‘letterbox’ in another jurisdictions.
  • Type B: companies that are mere ‘special purpose entities’, ie those too merely have a ‘letterbox’ in the country of incorporation, but they only hold financial assets and are not involved in any business activity in any country.
The ‘Panama papers’ concerned the ‘type B letterbox companies’ and those may indeed be seen as potentially problematic as they may be used for purposes of tax evasion (or at least tax avoidance), money laundering etc – while ‘type A letterbox companies’ may potentially be seen as a legitimate choice of law. So, for a legal assessment – be it of relevant rules of conflict of laws or, in the EU, the freedom of establishment – it is crucial to be clear which type of letterbox companies an analysis aims to address.