lobally governments lose a staggering $492 billion a year to tax abuse according to recent research from the Tax Justice Network—more than the GDP of Nigeria, Portugal, or Vietnam.
This money is vitally needed to fund public services, tackle inequality, and help drive sustainable economic growth. In Argentina, 53% of people live in poverty. At the same time, globally one–quarter of taxes owed by the wealthiest 0.01% of the population are estimated to go unpaid, potentially costing governments as much as $200 billion.
Multinational corporations and high net worth individuals use a variety of tools to avoid or evade tax. However, tax leaks like the Panama and Paradise Papers revealed how anonymously owned companies often play a pivotal role: tax evaders use ‘shell’ companies to hide their money from tax authorities, including by moving money through offshore jurisdictions with low transparency.
To help tackle this so far over 90 countries have set up registers of the real—or beneficial—owners of companies and other often opaque legal arrangements, helping keep track of who owns what and ensure they pay the tax that’s due.
Giving tax authorities access to company ownership information works. As a result of the Panama Papers leak—which involved information about the clients of just one Panamanian offshore law firm, Mossack Fonseca—governments around the world recovered over $1.2 billion in revenue within three years.
However, these reforms aren’t yet as impactful as they could be. Open Ownership interviewed nearly 50 government officials and other users of beneficial ownership registers from around the world. Government authorities reported cumbersome request processes to get information from other countries and painfully slow response times. In addition, data often isn’t shared between countries in a standardized and easy to use way, while some tax authorities don’t have the capacity, time, or expertise to connect the information that comes from abroad with their own datasets. All of these issues make it harder to identify the real owners.
From our research and nearly a decade of experience helping governments implement beneficial ownership transparency reforms, we’ve identified three key steps governments can take to help tackle the use of anonymously owned shell companies and clamp down on tax abuse. These cover both things governments can do unilaterally, and also where cooperation between countries is needed.
Data accuracy. Firstly, governments should collect accurate data on companies in their own country. Currently only around half of all countries globally have live beneficial ownership registers. Key economies like Switzerland, Australia, China, and Saudi Arabia are yet to implement them, which would help them to collect even more tax revenue.
What’s more, the data countries collect isn’t always accurate. In the UK, people have registered companies under fake names like Santa Claus and Darth Vader. Governments should use new and existing technologies to check for missing or potentially inaccurate information, and take action to ensure the data is accurate.
Data sharing. Secondly, governments should share data with other countries. Tax abuse often happens across borders, but tax authorities face significant problems accessing and using beneficial ownership data from other jurisdictions. Just 9% of countries assessed are implementing beneficial ownership reforms effectively, according to the intergovernmental body that oversees global beneficial ownership transparency standards, the Financial Action Task Force (FATF).
In the short term, the FATF standards and OECD rules on exchanging information should be tightened to help other countries get the data they need. However, the FATF standards were designed to tackle money laundering rather than tax abuse more broadly, and both the FATF and OECD rules are shaped around the needs of high income countries. So in the longer–term, countries should develop new rules that more effectively fight tax abuse through a process that gives developing countries an equal say, for example as part of the negotiations for a new UN tax agreement.
Data use. Finally, countries should use the data. This might sound like an obvious step, but all too often relevant parts of government can’t access data when and in the format they need, and they don’t have the resources to process and act on it. For example, tax authorities need to have the know–how to match up data on domestic taxpayers with information about who owns foreign companies, and the resources to investigate potential irregularities.
Introducing or strengthening beneficial ownership reforms should be a no brainer for governments. Not only can these reforms help tackle tax abuse and raise much needed money for public services and other government priorities, but they can also help reduce corruption, fraud and other forms of criminal activity, building trust in businesses, democracies and across societies. With a few notable exceptions, most countries are heading in the right direction. However, reforms need to go much further and faster.
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Tackling anonymous ‘shell’ companies to clamp down on tax abuse
Photo by Dimitri Karastelev on Unsplash
January 10, 2025
Governments lose nearly $500 billion annually to tax abuse, much of this through shell companies. Giving tax authorities fast, accurate access to ownership information of these companies is key to combating this abuse, writes Agustina De Luca.
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lobally governments lose a staggering $492 billion a year to tax abuse according to recent research from the Tax Justice Network—more than the GDP of Nigeria, Portugal, or Vietnam.
This money is vitally needed to fund public services, tackle inequality, and help drive sustainable economic growth. In Argentina, 53% of people live in poverty. At the same time, globally one–quarter of taxes owed by the wealthiest 0.01% of the population are estimated to go unpaid, potentially costing governments as much as $200 billion.
Multinational corporations and high net worth individuals use a variety of tools to avoid or evade tax. However, tax leaks like the Panama and Paradise Papers revealed how anonymously owned companies often play a pivotal role: tax evaders use ‘shell’ companies to hide their money from tax authorities, including by moving money through offshore jurisdictions with low transparency.
To help tackle this so far over 90 countries have set up registers of the real—or beneficial—owners of companies and other often opaque legal arrangements, helping keep track of who owns what and ensure they pay the tax that’s due.
Giving tax authorities access to company ownership information works. As a result of the Panama Papers leak—which involved information about the clients of just one Panamanian offshore law firm, Mossack Fonseca—governments around the world recovered over $1.2 billion in revenue within three years.
However, these reforms aren’t yet as impactful as they could be. Open Ownership interviewed nearly 50 government officials and other users of beneficial ownership registers from around the world. Government authorities reported cumbersome request processes to get information from other countries and painfully slow response times. In addition, data often isn’t shared between countries in a standardized and easy to use way, while some tax authorities don’t have the capacity, time, or expertise to connect the information that comes from abroad with their own datasets. All of these issues make it harder to identify the real owners.
From our research and nearly a decade of experience helping governments implement beneficial ownership transparency reforms, we’ve identified three key steps governments can take to help tackle the use of anonymously owned shell companies and clamp down on tax abuse. These cover both things governments can do unilaterally, and also where cooperation between countries is needed.
Data accuracy. Firstly, governments should collect accurate data on companies in their own country. Currently only around half of all countries globally have live beneficial ownership registers. Key economies like Switzerland, Australia, China, and Saudi Arabia are yet to implement them, which would help them to collect even more tax revenue.
What’s more, the data countries collect isn’t always accurate. In the UK, people have registered companies under fake names like Santa Claus and Darth Vader. Governments should use new and existing technologies to check for missing or potentially inaccurate information, and take action to ensure the data is accurate.
Data sharing. Secondly, governments should share data with other countries. Tax abuse often happens across borders, but tax authorities face significant problems accessing and using beneficial ownership data from other jurisdictions. Just 9% of countries assessed are implementing beneficial ownership reforms effectively, according to the intergovernmental body that oversees global beneficial ownership transparency standards, the Financial Action Task Force (FATF).
In the short term, the FATF standards and OECD rules on exchanging information should be tightened to help other countries get the data they need. However, the FATF standards were designed to tackle money laundering rather than tax abuse more broadly, and both the FATF and OECD rules are shaped around the needs of high income countries. So in the longer–term, countries should develop new rules that more effectively fight tax abuse through a process that gives developing countries an equal say, for example as part of the negotiations for a new UN tax agreement.
Data use. Finally, countries should use the data. This might sound like an obvious step, but all too often relevant parts of government can’t access data when and in the format they need, and they don’t have the resources to process and act on it. For example, tax authorities need to have the know–how to match up data on domestic taxpayers with information about who owns foreign companies, and the resources to investigate potential irregularities.
Introducing or strengthening beneficial ownership reforms should be a no brainer for governments. Not only can these reforms help tackle tax abuse and raise much needed money for public services and other government priorities, but they can also help reduce corruption, fraud and other forms of criminal activity, building trust in businesses, democracies and across societies. With a few notable exceptions, most countries are heading in the right direction. However, reforms need to go much further and faster.
