Beneficial Ownership

How can beneficial ownership transparency limit tax evasion?

Principles and Standards
One essential way of addressing dangers pertaining to a system’s financial integrity is the declaration of beneficial ownership information. Beneficial ownership is now a key element of international tax transparency and fight against tax evasion and other financial crimes. Indeed, beneficial ownership allows competent authorities, notably tax authorities, to conduct due diligence on an entity’s real owners in order to perform an a priori as well as an a posteriori control on all taxpayers and connected activities.

Tax evasion can effectively be prevented by beneficial ownership declarations when the relevant authorities who have access to information pertaining to taxpayers can effectively impose the payment of the taxes due and can identify taxpayers who have not made their declarations or payments. Beneficial ownership declarations can also help identifying aggressive schemes and structures hidden under tax optimization.

In order to adequately prevent and help fight tax evasion, beneficial ownership must be properly implemented. Below are some of the necessary principles and standards13, for the effective applicability of beneficial ownership, notably with regards to tax evasion:

The scope and thresholds of application of the beneficial ownership should not be subject to multiple variations. Indeed, the definition of beneficial ownership must be clear and easy to understand in order to avoid any misunderstandings.
The collection of information as well as its verification must be adequate and subject to consistent and effective control.
Information pertaining to beneficial ownership should not only be accessible to authorities but also to all the public through the enactment and launch of a public registry. International Standards include timely access by authorities to updated and verified information. Open Ownership takes it a step further and asks for beneficial ownership information to be accessible to the public, therefore helping in public accountability.
Moreover, putting in place digital registries helps in combating tax evasion and broadening the tax base by allowing the aggregation of taxpayers' data from a variety of sources. “Ideally, the register should be digitalized and maintained in a secure IT platform. Digital technologies are critical for managing high volumes of information, facilitating the reporting of information by obliged entities, lowering transactional costs, and ensuring the integrity of the information. Maintaining the register in an IT platform also facilitates the checking of consistency with other data sources and the timely access to information by law enforcement authorities”.