For wealth taxes to work, governments need to know who owns what

Photo by Jon Tyson on Unsplash.

Wealth taxes are high on the policy agenda – a key theme at this year’s G20, and proposed as a solution to help countries find the USD 1 trillion annual financing needed to meet United Nations (UN) climate goals. To effectively enforce wealth taxes, governments need to get better at collecting and sharing data on where the super-rich hold their money.

Governments globally are looking to find new ways to raise tax revenue in order to invest in public services, finance the green transition, and pay down government debt.

Many are considering new taxes on the ultra-wealthy. Brazilian President Luiz Inácio Lula da Silva has proposed a global 2% tax on billionaires’ wealth, which economist Gabriel Zucman calculates could raise an estimated USD 200–250 billion a year. The proposal has been discussed throughout this year’s G20, and today’s G20 Leaders’ Declaration sees leaders “[seeking to] engage cooperatively to ensure that ultra-high-net-worth individuals are effectively taxed”.

As the COP29 climate summit unfolds, research cites the importance of wealth taxes to raising the USD 1 trillion annual financing. This is needed to fund climate adaptation, mitigation, and related measures that give the world a meaningful chance to meet commitments in the Paris Agreement and the UN Framework Convention on Climate Change.

Political support for wealth taxes is gaining momentum. Brazil’s proposal has been backed by Germany, South Africa, and Spain. France introduced a wealth tax on high-value real estate back in 2018, and is now expanding it to include other types of assets. While politicians and economists debate the merits of wealth taxes – including how much money they will bring in and the effect they will have on economic growth – it’s clear that if countries do introduce this kind of taxation, they need to have the right measures in place for enforcement.

Beneficial ownership and tax abuse

New figures released today calculate that globally countries lose an estimated USD 492 billion a year to tax abuse from multinational corporations and rich individuals. Over the past decade, leaks such as the Panama, Paradise, and Pandora Papers have shown how the super-rich move their money from country to country using anonymously owned shell companies – hiding it from tax authorities in an effort not to pay the tax they owe.

There is increasing recognition that information on the real – or beneficial – owners of companies and trusts are needed to stop tax abuse as well as improve tax administration and collection. Evidence suggests it’s already working. Organisation for Economic Co-operation and Development (OECD) research shows that the exchange of information, voluntary disclosure programmes, and offshore tax investigations – processes in which beneficial ownership information plays a central role – has led to 16 Latin American countries identifying an additional EUR 27.8 billion in tax revenue since 2009.

In this example, beneficial ownership information is one important piece in a broader information puzzle that tax authorities use to identify hidden wealth. This aligns with emerging findings from Open Ownership’s research with users of beneficial ownership data, which foregrounds the relevance of information on ownership chains. So, what does this all mean for beneficial ownership transparency reforms?

Making beneficial ownership reforms work for tax

Over 80 countries have introduced registers of the beneficial owners of companies, trusts, and other corporate vehicles. While many of these registers were set up to prevent money laundering and corruption (actors of which also use shell companies), some registers are designed to strengthen tax collection and administration. These registers, alongside data exchanged through the Common Reporting Standard, offer a valuable opportunity to increase tax authorities’ capacity to administrate and enforce wealth taxes, particularly by being able to proactively understand the ownership of various assets. The OECD recognises the value-add that beneficial ownership registers can have to ensure tax authorities have efficient access to up-to-date information in order to ascertain whether particular taxpayers directly or indirectly own real estate abroad.

Here are three key shifts that will help realise the potential of beneficial ownership reforms to support effective taxation:

1. More countries implementing beneficial ownership registers

Although most major economies have already introduced registers, there remain weak links in the system where the wealthy can continue to try to hide their money to evade wealth tax or other forms of taxes. Financial centres like Australia, China, Russia, Saudi Arabia, and Switzerland are yet to have live central beneficial ownership registers.

2. Aligning beneficial ownership reforms with tax policy goals

Beneficial ownership policies should be designed with tax goals in mind. For example, the Australian Treasury places its beneficial ownership reforms within a suite of measures to promote tax integrity: “Increasing the availability of companies’ beneficial ownership information is intended to discourage the use of complex structures to obscure tax liabilities and facilitate financial crimes”. Policy shifts such as this will help leverage beneficial ownership registers for effective taxation, rather than being siloed as an anti-money laundering tool.

3. Ensure data is accessible and usable

The data in beneficial ownership registers needs to be accessible to those who need it to tackle tax abuse and ensure effective tax administration. We know from research into effective implementation of beneficial ownership registers for anti-money laundering purposes that even when information access is anchored in law, significant barriers can exist to accessing and using it in practice. It is reasonable to expect that tax authorities may also experience these barriers. The British Virgin Islands (BVI) is a useful example. Although the law gives tax authorities the right to request access to information in BVI’s beneficial ownership register, the process is heavily restricted, with access requiring a senior official to submit a written request.

Where next?

Governments considering new wealth taxes – and, in fact, all countries looking to clamp down on tax abuse – should ensure they are collecting high-quality beneficial ownership data and making it accessible to those who can help improve tax collection and compliance. For countries that already have beneficial ownership registers, making use of this existing data can be a (relatively) quick win to increase their ability to tackle tax abuse.

However, national progress isn’t enough. Tax abuse is a transnational problem, and international action is needed to further advance reforms as well as ensure that authorities and other relevant stakeholders can track down tax abuse by accessing up-to-date information on ownership interests that taxpayers hold abroad through corporate vehicles and other assets.

There is significant momentum to shake up the global tax system, most notably with a new UN framework convention on international tax cooperation set to be negotiated by 2027. By leveraging beneficial ownership transparency, we can ensure these global reforms as well as national efforts to tax wealth operate effectively, raising much needed funds for public services and to promote sustainable development.