Leveraging ownership information to improve taxation

Overview

Over the past decade, significant advances have been made in transparency over the individuals who ultimately own, control, and derive benefit from companies and other legal vehicles – the beneficial owners – by requiring legal vehicles to disclose this information to government agencies, which collect it in central registers. [1]

In recent years, there has been considerable attention on how beneficial ownership (BO) information can be used to improve taxation. BO information helps understand the distribution of wealth and assets in a country, and therefore provides insights into the true tax base of an economy. [2] The value of BO information for tax authorities has been demonstrated through the Panama, Paradise, and Pandora papers, and other leaks. [3] Many tax authorities use information from these leaks, including information on the owners of legal vehicles. With the implementation of central registers, there is an opportunity for tax authorities to systematically and proactively incorporate the use of BO information into their processes to achieve their aims more effectively.

Strengthening tax compliance and mobilising domestic revenue are high on the global policy and political agenda. Jurisdictions of all income levels are under pressure to raise more revenue, as illustrated by the United Nations (UN) Financing for Development process, where strengthening fiscal systems and international tax cooperation, and decreasing outflows through tax evasion, feature prominently. [4] Taxation – specifically, taxing the ultra wealthy and improving international cooperation – also featured prominently in the 2024 G20 summit in Rio de Janeiro. [5]

The tax gap is the difference between the amount of tax that should, in theory, be paid to a tax authority versus what is actually paid. Closing the tax gap could yield significant extra resources for governments worldwide. In the United Kingdom (UK), the 2024 tax gap was estimated at close to GBP 40 billion. [6] According to the UN, the vast majority of Africa’s estimated USD 88.6 billion illicit financial flows are due to tax abuse, representing approximately 3.7% of the continent’s GDP. [7] In Latin America, the lack of information on taxable assets held offshore was estimated to lead to a EUR 19 billion loss in tax revenue. [8]

Various policy measures, including improved tax transparency and international anti-money laundering (AML) frameworks, have targeted these losses. Due to the role of companies and trusts in both tax abuse and money laundering, the creation of central BO registers for legal vehicles has been at the heart of many of these measures. The intersection of AML measures and tax compliance has been extensively explored. [9] However, understanding how information held by central BO registers can be effectively used by tax authorities merits further exploration. While some countries have implemented central BO registers as part of AML measures, many have taken a more holistic approach to the beneficial ownership transparency (BOT) of legal vehicles, with implications for how this information can be accessed and used, and by whom. These jurisdictions implement BOT to help facilitate economic growth and tackle misuse of companies more broadly, enabling them to leverage their registers to address multiple policy objectives. [10] This means that exploring the use cases of BO information for tax authorities through an AML lens alone may be limiting. For some jurisdictions, tax integrity is a key policy objective, and central BO registers for legal vehicles are overseen by tax authorities. [11]

Information about the beneficial owners of legal vehicles from central registers is essential to understanding BO networks – the networks of relationships between individuals, legal entities, and assets – but it is not the only relevant information to do so. For example, other sources such as information about shareholders and nominees partly constitute and overlap with BO information. Tax authorities may need to rely on multiple information sources to comprehensively understand the ownership and control relationships in a BO network.

This briefing will focus on how tax authorities can effectively use BO information of legal vehicles from central registers and other relevant information relevant to understanding BO networks. Tax authorities perform different functions in different jurisdictions, but are broadly responsible for tax collection as well as detecting and investigating cases where insufficient tax has been paid, including through audits. These activities fall under a function that is referred to as compliance. Tax authorities are also often responsible for assessing and informing tax policy, and they may have law enforcement and criminal investigatory powers and responsibilities.

Tax authorities often combine large amounts of information to perform these functions. They generally have significant legal powers to access private information from other government agencies and businesses, and tend to have the skills and resources to analyse this information. This can include information from tax returns and statements from individuals, businesses, and employers; bank, savings, pensions, and investments records; records from government registers, such as for legal vehicles, real estate, motor vehicles, and vessels; and online information about lifestyle and activities, including from social media and trading platforms. This information is combined to identify and mitigate risks of noncompliance. Due to their privileged access, tax authorities are often restricted from sharing most of this information.

A number of responsibilities that are regularly – but not ubiquitously – assumed by tax authorities will not be covered by this briefing. These include the collection of non-tax revenue, broader customs functions, AML supervision, administering financial support or welfare, and overseeing BO registers for legal vehicles.

BO information for legal vehicles from central registers and other information relevant to understanding BO networks helps tax authorities to:

1. Close the tax gap through better compliance by:
   1. uncovering hidden assets;
   2. revealing the sources or types of income;
   3. understanding relationships in transfers of assets; and
   4. countering criminal attacks.
2. Develop and deliver policy reforms to tax systems, underpinned by better insight and analysis.

Whether and how effectively BO information for legal vehicles held by central registers can be used is determined by decisions about implementation design. This briefing sets out key considerations for implementing agencies, including: [12]

• taking a whole-of-government approach to better understanding relationships between individuals, entities, and assets;
• taking a comprehensive approach to understanding asset ownership by leveraging progress made with BO registers for legal vehicles and combining BO information for legal vehicles with information on direct interests related to entities and assets;
• further developing legal and technical frameworks for accessing information within and across borders.

Next page: Background