You, dear reader, are a prolific and casual user of offshore tax havens. I’m assuming you don’t live in a cave or in a remote hunting community. Even if you did, though, you’re probably a dabbler: you have little choice.

Many people, and perhaps you’re one of them, share a queasy feeling that something has gone badly wrong with the world economy – but can’t quite put their finger on what the source of the trouble is. Once you understand the nature of offshore tax havens, you should feel closer to pinning down the answers.

Before I explain what they are, and why powerful governments don’t just close them down, I want you to take part in a short challenge. See if you can dodge all my bear traps, and declare yourself untainted by tax havens. If you succeed, you win my Hermit of the Year prize.

Do you celebrate Christmas? If you do (or even if you do not), did you buy any gifts on Amazon last December? If so, then your goods were quite likely to have been routed through a byzantine world hosted – only on paper, you understand – by the Grand Duchy of Luxembourg, where Amazon has located its European headquarters, slashing its tax bills around the world. In 2011, Amazon revealed that the US Internal Revenue Service was chasing it for $1.5bn in back taxes. More recently, Amazon has said it will stop routing its UK sales through Luxembourg.

Perhaps you shun Amazon. You buy only local products: good for you. But did you search for any gifts online? Did a company called Google play any role in this? In 2011, Google shuffled four-fifths of its profits through a subsidiary in the tax haven of Bermuda, cutting its worldwide tax rate in half and its tax rate in some countries to nearly zero. Google boss Eric Schmidt said in 2012 he was “very proud of the structure that we set up… it’s called capitalism”.

You’ve never used Google? OK, let’s say you did all your shopping in the real world: traipsing around your local stores, picking up homemade wooden artefacts that you could weigh in your hands. Wonderful. You’re nearly there.

But not quite. Did you listen to any music on those days? Let’s hope iTunes wasn’t part of that picture. The tech giant Apple achieved what Senator Carl Levin called, in 2013, the “holy grail” of tax avoidance, setting up offshore corporations legally incorporated in Ireland and the US – but for tax purposes, not resident anywhere. Apple shifted $74bn into one of these subsidiaries between 2009 and 2012, paying 2% in tax on it.

Let’s cut this challenge short. Did you at any point consume the services of any of these: AIG, Aviva, Barclays, Black & Decker, British American Tobacco, Burberry, Citigroup, Deutsche Bank, Facebook, FedEx, GlaxoSmithKline, Ikea, HSBC, JP Morgan, Microsoft, Pepsi, Skype, Starbucks, Vodafone or Walt Disney? This is just my quirky personal selection from a list of more than 350 multinationals whose convoluted tax schemes were revealed last November by a whistleblower, working for one accountancy firm, PricewaterhouseCoopers (PwC), in one European tax haven, Luxembourg.

The revelation provoked a scandal that has become known as Luxleaks, involving tens of thousands of documents, a whole menagerie of Luxembourg-based tax schemes. What happened, as a result? Three people are currently being pursued by the courts, accused of violating trade secrecy: the main whistleblower, a diffident and bespectacled 28-year-old Frenchman named Antoine Deltour; a second, anonymous whistleblower; and a French journalist, Edouard Perrin (who first helped publicise the leaked data and is being pursued as an accomplice).

It should be noted that everything these companies are doing is legal: it’s what we call tax avoidance or planning – not evasion. But the point I want to make is that tax havens are everywhere. It’s like The Matrix. I can’t stress strongly enough how everywhereish they are. And, until recently, who even noticed?

Tax havens’ defenders say they smooth the flow of capital around the world, removing roadblocks and red tape. But what are those roadblocks? Taxes, regulation and democratic laws. Havens are places where you can put your wealth in order to escape the rules at home. Those rules might be around tax, or criminal laws, or rules about transparency and disclosure, or financial regulations. (It’s not always about the tax.)

You don’t have to put your wealth itself in the tax haven. It is the legal structure that owns the wealth – the shell company, the trust, or whatever – that usually matters. The asset itself – the thing you own – can be anything, anywhere. It could be a painting or a Learjet or a Swiss bank account, or a luxury home in Mayfair that the owner – let’s say a Ukrainian oligarch – is currently using for the benefit of his daughter. Instead of owning the house directly, the oligarch owns the house via an intermediate structure in a tax haven. The land registry records won’t list the oligarch’s name, but the name of some anonymous offshore shell company. And when you go to find out who owns that company, you’ll come up against a brick wall.

This can all take a bit of getting used to, even for people with wealth. When Hurricane Ivan headed towards the Cayman Islands in 2004, it sent a stream of light aircraft racing to Miami. They contained computer hard disks, relating to a large slice of the world’s Cayman-held wealth. (Banking assets in Cayman account for nearly a 15th of the world’s $30tn in banking assets.) When the storm passed, they flew them all back again.

Inside the Wilmington State Building, Delaware’s chief deputy secretary of state, Richard J Geisenberger, oversees one of the more than 5,000 company incorporations that take place every day in Delaware. The process takes just a few minutes, and the state office stays open until midnight from Monday to Thursday. More than 50% of all publicly traded US companies are incorporated in Delaware. Photograph: Paolo Woods and Gabriele Galimberti/INSTITUTE

There are many tricks used to shift money offshore, and a pinstriped army of accountants and lawyers to help people do it. The commonest technique is one called transfer pricing, employed by pretty much every multinational.

This is how it works. Let’s say a corporation picks and packs a container-load of bananas in Ecuador, and it costs the company $1,000. It sells them to a French supermarket for $3,000. Which country gets to tax the $2,000 profit – France, Ecuador? The answer is, “Where the multinational’s accountants decide.”

The multinational sets up three companies, all of which it owns: EcuadorCo, HavenCo (in a zero-tax haven) and FranceCo. EcuadorCo sells the container to HavenCo for $1,000, and HavenCo sells it on to FranceCo for $3,000. That’s basically it. (The bananas themselves don’t go anywhere near the tax haven: this is all just paper-shuffling in New York or London.)

If you blinked, you may have missed what happened here. It cost EcuadorCo $1,000 to pick and pack the container, and they sold it on for $1,000. So EcuadorCo records zero profits, meaning no taxes. Likewise, FranceCo buys it for $3,000 and sells it to the supermarket for $3,000. Again, no profits, and no taxes. HavenCo is the key to the puzzle. It bought the container for $1,000 and sold it for $3,000 – a $2,000 profit. But it is based in a haven, so it pays no tax. In short, all the profits have been stripped out of France and Ecuador, and shovelled into the haven. Hey presto!

In the real world, things are more complicated. Countries put in place defences against this kind of nonsense, but the lawyers find ways to get around them, in a constant game of cat and mouse. These games transfer wealth from taxpayers towards corporate shareholders. This isn’t about creating wealth, but about one group of people extracting wealth from another group. These transactions boost inequality, every time.

They also help multinationals outcompete their smaller and more local competitors. Tax havens aren’t the only reason your local bookstore has gone out of business – but they are a big part of it. (Note, too, that these are not “leftist” concerns. Tax havens are tilting the playing field for business: people across the political spectrum should oppose this. To be anti-tax haven is, in a very profound sense, to be pro-business.)

And let’s not forget all the criminality that tax haven secrecy facilitates. When multinationals use these platforms, they provide these places with immense political cover. Again, this should worry people on both the left and the right. It is, really, a fight between a globetrotting elite, in one corner, versus ordinary people in rich and poor countries – who all have a shared interest in tackling these problems. Nothing illegal has necessarily happened here; to focus only on who broke the law and who didn’t is to miss the big picture – which is, who got the cream and who didn’t.

Around a decade ago, I was writing a book about six countries along a stretch of west Africa’s oil-soaked coast, running from Angola up to Nigeria. Despite hundreds of billions of dollars in oil revenues, their people didn’t seem to be better off. In the case of Angola, then just starting to recover from an oil- and diamond-fuelled war, it was surely worse off than if no natural resources had been discovered. I wrote an article about corruption in west Africa’s oil-producing states, and a few days later got a letter from David Spencer, a US attorney who had worked with a big global bank in Latin America. He invited me to visit him in New York. Several months later we met and, before we had finished our starters, Spencer was getting worked up about matters that were not at all on my agenda: accounting rules, US tax exemptions, transfer pricing – and some curious legal arrangements in Delaware, a small US state roughly halfway between New York and Washington.

What on earth did any of this have to do with Nigeria? Realisation began to dawn: Spencer was telling me that the US was itself a giant tax haven, and that this was intensely relevant for west Africa. He explained why. During the Vietnam war, the US was spending more money overseas than it was earning there, and dollars were flowing out. To finance its growing deficit, the US wanted to lure foreign dollars back home. It did this by turning itself into a haven: creating tax benefits for foreigners. The idea was to start hoovering up capital flight and dirty money from around the world; looted west African oil money would do nicely.

So the US has been fighting hard against foreign tax havens, to crack down on its own tax cheats. At the same time the US is a big part of the world’s problem, with Wall Street banks profiting from American willingness to help foreign tax cheats. Britain’s own array of satellite havens – the Cayman Islands, British Virgin Islands, Bermuda, Jersey, all of which sport the Queen on their banknotes – are part of the same problem.

From my meeting with Spencer, I took away two big thoughts. First, that tax havens weren’t where I thought they were. The US, a tax haven? In those days, nobody was pointing that out. Second, this was no exotic criminal sideshow to the global economy, as I had assumed – it was a much bigger phenomenon than I had ever imagined. This was interesting. I was hooked.

Nicholas Shaxson is the author of Treasure Islands: Tax Havens And The Men Who Stole The World, published by Vintage.

Paolo Woods and Gabriele Galimberti’s photographs of tax havens will be exhibited at the Arles photography festival from 6 July to 20 September, and published in a book, The Heavens: Annual Report, by Dewi Lewis Media on 3 August, priced at £39.

