To finance development, tax agencies need to know who owns what

Participants at the recent Corruption and Tax Africa Regional Meeting, hosted by the United Nations Office on Drugs and Crime. Photo: Damian Wafula

Taxation is vital for national development and the delivery of public services. The need for more revenue from tax and other sources in low- and middle-income countries will be a central theme at key United Nations (UN) meetings this year – including the fourth Financing for Development Conference and the negotiations for a UN Framework Convention on International Tax Cooperation.

Tax administrations in low- and middle-income countries face no shortage of challenges in helping close the development financing gap – from improving cooperation with agencies like anti-money laundering authorities, to digitising tax filing. Among these is a lack of complete and reliable information on the interests tax residents hold in companies, other corporate vehicles, and their assets at home and abroad. Overcoming this challenge through transparency in beneficial ownership is a discrete and achievable goal that should be prioritised as a matter of critical importance.

In November 2024, Open Ownership discussed the opportunities to increase beneficial ownership transparency with representatives from tax authorities, anti-corruption agencies, and international organisations at the Corruption and Tax Africa Regional Meeting, hosted by the UN Office on Drugs and Crime. There, beneficial ownership information was described by one participant as the hub of a wheel. Knowing who owns what, where, when, and how is central to detecting and preventing interconnected crimes that result in the stripping of resources from this and other regions.

Tax evasion, political and business corruption, and money laundering all result in illicit financial flows which often go abroad. A recent Transparency International study followed the money from the proceeds of 78 corruption cases in African countries, revealing a network of at least USD 3.7 billion worth of corruption-linked assets including companies, properties, bank accounts, and luxury goods. In 85% of these cases, companies and trusts were used to obscure the ownership of assets. [1]

The strategic use of global networks of corporate vehicles, structured through jurisdictions with a high level of financial secrecy, is a well-documented means of evading taxation. This practice is particularly prevalent among those at the top 0.01% of the income distribution [2] as well as among multinational companies.

For tax authorities, gathering information on their tax residents’ interests abroad isn’t always straightforward. Getting otherwise undisclosed information on beneficial ownership has been among the most valuable outcomes of high-profile data leaks for tax agencies in both high- and low-income countries.

For example, as a result of the Paradise Papers leak of financial documents, which involved the release of information about the clients of just one offshore law firm, Appleby, the Chilean tax authority expects to recover at least USD 1.5 billion in unpaid taxes – enough to finance five large hospitals with over 3,000 beds and 110 operating rooms. [3] The Paradise and Panama Papers have also provided momentum for beneficial ownership transparency reforms worldwide. [4]

The introduction of global efforts to report and share tax information between countries – in particular through the Organisation for Economic Co-operation and Development’s (OECD) Common Reporting Standard (CRS) and its mechanism for the automatic exchange of tax information – has also helped curb international tax evasion. [5] However, meeting the legislative and technical standards needed to do this is costly and time consuming. For instance, only six African countries have made it over the necessary hurdles, and while this number is expected to double by 2026, it will still represent less than a quarter of the continent. [6]

While governments need time to effectively implement them, commitments and plans to establish beneficial ownership registers are already widespread. [7] When tax agencies can access other jurisdictions’ registers, it can offer a workaround for countries that are not yet participating in the CRS. This allows them to quickly and easily find information on where their residents hold beneficial ownership interests, which may have tax implications.

Moreover, beneficial ownership registers are also advantageous for participating countries that receive data through the CRS on an annual basis. Beneficial ownership registers fill a gap by providing real-time information. The data these registers hold also has the potential to be integrated with information on assets, for example, from real estate registers. [8]

In order to be effective, tax agencies need direct access to the information in these registers, especially information in international financial centres. Access is best facilitated by having digital registers populated with structured data that allow for user-friendly, direct access and exchange options, such as flexible search functionalities, application programming interfaces, bulk data sharing, or all three. This type of approach is aligned with a broader global movement towards building national-scale digital infrastructure. [9]

Research on the CRS suggests that having a highly digitised tax administration significantly increases the likelihood that receiving data will lead to a reduction in the illegal use of tax havens. [10] This type of improvement is being supported by overseas development assistance slated for domestic revenue mobilisation. [11]

While aiding tax administrations through these channels is critical, supporting the effective implementation of beneficial ownership registers globally should also be a priority. More fundamentally, making beneficial ownership registries in relatively higher-income economies accessible and easy to use for tax authorities in relatively lower-income countries is one way in which the historical recipients of illicit funds can provide some restitution.

Moreover, while it is increasingly clear that tax agencies depend on beneficial ownership registers, there is more to be done to understand exactly to what extent these agencies are using the information, what they need it for, and how they can use it most effectively. Drawing on research with users of beneficial ownership information, a forthcoming Open Ownership publication will look at the use cases for tax administrations.

This research shows that beneficial ownership information supports tax compliance in multiple ways, including helping tax authorities understand relationships between entities to identify taxable assets and income. It also helps inform tax policy and systematically improve tax system integrity. The publication’s release later this year seeks to elevate this important issue in upcoming UN fora and beyond.