[goodcanadian]

Furthermore most of those individuals probably did nothing illegal, but rather they were trying to minimize their tax burden through (mostly) legal shell corporations.

I've looked into offshore banking and shell companies and the like a bit over the years. I'm not sure why; I guess I just have a fascination with business and finance. My conclusion has long been that, for an individual who intends to comply with the law, there is very little benefit to these structures. Generally, an individual can't legally lower their tax burden through the mechanism of an offshore shell company.

The legal versions of this involve genuine corporations headquartering in a business friendly location. They don't do it secretly, however. It is done in the open, and the corporation's owners (the shareholders) still have to pay their taxes on any dividends or capital gains in whatever jurisdiction they live in. You can argue whether or not Google should be legally allowed to move most of their income to Ireland, but that is a totally different scenario to a single person starting a company in Panama to hold his investments. In the United States, at least, a single shareholder company that does nothing other than hold investments is treated as a pass through for income tax purposes. I.e. you can't avoid taxes simply by keeping the money in the company. Moreover, even if you could avoid the tax on the company profits, you would still have to pay tax when your wanted to take the money out to actually spend it.

[circlefavshape]

Don't you only become liable to pay the tax when you repatriate the money? So perhaps you can spend it outside the US with impunity?

[goodcanadian]

You are correct that a legitimate corporation will not be taxed on the money unless and until it is repatriated, but that doesn't help an (honest) individual; it only helps multinational corporations.

For every country (3) where I have filed taxes, you are liable for individual taxes as soon as you earn the income. So, in the case of a legitimate business, as soon as you pay yourself a salary or other benefit (perhaps, buy yourself a yacht; really, anything that is not a clear business expense). It doesn't matter where in the world you earn the income or spend it; you are taxed on your worldwide income.

However, to take it a step further, the IRS doesn't really recognize personal holding companies as legitimate businesses for tax purposes. You are liable to pay tax on any investment income as though it were personal income even if you leave it in the company name. Again, it doesn't matter where in the world the holding company is.