How Assets Are Hidden and How They Are Discovered

We’ve emphasized multiple times the distinction between tax evasion and tax avoidance: the former is illegal, while the latter is not. Many people believe that hiding assets, such as through secretive offshore companies in tax havens or by holding assets in trusts, falls under tax avoidance. Unfortunately, this is tax evasion and is therefore illegal.

The test to determine whether hidden assets constitute tax avoidance is simple: if disclosing these assets and their associated income to the tax authorities would not result in additional tax liability, then it’s tax avoidance. Otherwise, it’s tax evasion.

That said, while legal tax avoidance is difficult, hiding assets is relatively easy, which is why it appeals to high-net-worth individuals (HNWIs). However, in an era of increasing global tax transparency, coupled with the widespread application of big data and artificial intelligence (AI) technologies, hiding assets is becoming increasingly challenging and risky. For example, since Russia’s actions against Ukraine, Western countries have been actively tracking the hidden overseas assets of Russian elites and oligarchs, enforcing a policy of “if it can be seized, it will be seized.”

In this article, we’ll explore how HNWIs typically hide their assets and how regulators uncover them.