How do people and companies avoid paying taxes?

THE LATEST mega-leak of documents to the International Consortium of Investigative Journalists (ICIJ) made a splash on October 3rd, when media around the world began running stories on what they have dubbed the Pandora Papers. (Revelations are promised throughout the week.) The exposé lifts the lid on the financial affairs of dozens of world leaders, other public officials and billionaires in 91 countries. The focus of this leak, as with the ICIJ’s past ones, such as the Panama Papers in 2016 and the Paradise Papers a year later, is the offshore dealings of the global elite. The use of an offshore company to move money or buy property is not necessarily dodgy; a billionaire may mask a purchase made with legitimate wealth for privacy reasons. But shell companies registered in palm-fringed offshore centres (the British Virgin Islands is a favourite) are often used to avoid or evade tax, or to launder ill-gotten gains.

Individuals have various ways to avoid tax legally by using structured tax shelters or changing their place of residence. Tax evasion is a different matter, treated as a criminal offence in many countries (though famously dealt with more leniently in Switzerland). The smartest evaders use a combination of bank accounts, shell companies, trusts and foundations—often fronted by nominees—in one or more offshore financial centres. Corporate tax avoidance is a greyer legal area. Companies naturally push the envelope, often betting that the authorities will have neither the wit nor the resources to confront them over their tax-minimisation strategies—or that governments will accept less tax in return for investment by “mobile capital”.