Tax Authorities Deserve Full Benefits of Transparency Reforms

Globally, countries lose an estimated $492 billion a year to tax abuse from multinational corporations and rich individuals. With governments around the world struggling to find the revenue to invest in public services, finance the green transition, or pay down government debt, many policymakers have made closing this gap a top priority.

Last month, governments agreed to progressed negotiations to bring global tax rules under the United Nations to try to boost international cooperation and help countries collect much-needed tax revenue. Tax cooperation is also a key priority for countries at the Financing for Development Summit in Spain this summer.

Leaked documents—including from the Panama, Paradise, and Pandora Papers—revealed how shell companies with complex and opaque ownership structures have played a major role in facilitating tax abuse. Wealthy individuals and multinational corporations use them to move their money from country to country—including via offshore jurisdictions with low transparency—and hide it from tax authorities. Additionally, gangs use shell companies to traffic drugs, and corrupt politicians use them to launder stolen money.

Over the last decade, governments have made significant progress to tackle these ills by creating registers of who really owns, controls, and benefits from companies and other legal vehicles. Nearly 100 countries have already introduced beneficial ownership registers.

However, while tax authorities have used beneficial ownership information for a long time, most are failing to use it proactively and systematically. A new report by Open Ownership—the organization I lead—finds that tax authorities don’t yet properly integrate data from beneficial ownership registers around the world with data they hold on domestic taxpayers, which would give them a much clearer picture of who owns what.

By better using beneficial ownership data, tax authorities could identify potential risks of noncompliance and carry out investigations, helping them clamp down on tax abuse and raise more tax revenue. Tax authorities should focus on four key areas.

Understanding who owns taxable assets. This includes cases such as ex-Formula One boss and British business magnate Bernie Ecclestone, who in 2015 failed to declare £400 million (more than $541 million in 2015) he held in a trust in Singapore to the UK government. In 2023, after the UK government became aware that he was the beneficial owner, he pleaded guilty to fraud and paid over £650 million to settle the matter.

Understanding the source or type of income. The Paradise Papers revealed that three actors in BBC sitcom “Mrs. Brown’s Boys” attempted to dodge tax by diverting more than £2 million of their acting income into companies in Mauritius where they were the beneficial owners and sending money back as loans.

Understanding transactions and the transfer of assets. US retail giant Walmart Inc. dodged tax in Chile by shifting its profits into Panama, where it withdrew the money tax-free. Walmart set up extortionate loan payments from its Chilean subsidiaries to a bank in Panama, but it was later revealed that Walmart’s US parent company was the ultimate loan beneficiary.

Understanding criminal use of legal entities. In mini umbrella company fraud, organized criminals create multiple umbrella companies, each of which artificially employs a small number of temporary workers rather than employing them through one company. These are set up to fraudulently claim tax reliefs designed for small businesses.

By flagging potential risks and systematically investigating examples such as those above, tax authorities would gain more tools to reclaim lost tax revenue, which would help shift taxpayer behavior toward greater compliance.

In addition to being used by revenue authorities to collect tax, governments can use beneficial ownership data to inform tax policy. For example, analyzing data on wealthy asset holders can provide empirical evidence on the potential impacts of wealth taxes.

It’s been claimed that the world’s most valuable resource is data, not oil. Our research suggests that governments could gain hugely from the beneficial ownership data they collect but often aren’t yet putting it to use to support effective taxation.

By collecting and verifying data, sharing it with other countries, and equipping tax authorities with the resources and technical expertise they need to analyze and act on it, governments could unlock more of the tax revenue they desperately need—whether to invest in economic growth, fund public services, or pay down spiraling debt.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Thom Townsend is Open Ownership’s executive director and chief strategist.

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