In November 2021 the Global Forum on Transparency and Exchange of Information for Tax Purposes, in collaboration with the Inter-American Development Bank (IDB), published a toolkit on Building Effective Beneficial Ownership Frameworks.
Beneficial owners are defined by the Financial Action Tax Force (FATF) as the natural persons who are behind an entity such as a legal person or arrangement and are controlling the entity. The international standards on exchange of tax information require transparency of beneficial owners. Ensuring that information is available on the beneficial owners of legal persons and arrangements is important for tax transparency and in combating tax evasion and other serious financial crimes such as money laundering.
Access to information on beneficial ownership helps a country to assess and collect the correct amount of tax and also helps its treaty partners to obtain relevant information.
The toolkit looks at the different approaches to implementing a framework for the availability of beneficial ownership information. The approaches are based on the framework for anti money laundering and countering the financing of terrorism (AML/CFT); information kept by the entities themselves; a central register of beneficial owners; and information kept by the tax authorities.
Peer Reviews
The toolkit includes experience gained from the peer reviews by the Global Forum on compliance with the standard on exchange of information on request (EOIR), and trends noted from looking at how countries are implementing the beneficial ownership requirements.
The peer reviews revealed that only 51% of the reviewed jurisdictions were considered to be “largely compliant” regarding the availability of information on legal and beneficial ownership on all relevant entities. The issues included gaps resulting from deficiencies identified in the availability of legal ownership information, which also impacted the availability of beneficial ownership information.
Gaps were also identified in the effective supervision of the beneficial ownership requirements, possibly reflecting that compliance with beneficial ownership requirements relating to all relevant legal persons and arrangements is relatively new for many jurisdictions and they are still developing methods to comply with the requirements.
The practical implementation of transparency of beneficial ownership on bank accounts is mostly satisfactory. Countries can comply because the anti-money laundering and combating the financing of terrorism (AML/CFT) legislation usually ensures the availability of information on the identity and ownership of bank accounts. Also, the banks are aware of their AML/CFT obligations and dedicate adequate resources to them, and in addition banks are usually well supervised by a public authority such as a central bank, which has adequate resources and enforcement powers.
Reasons for Concealing Beneficial Ownership
The identity of the owners of assets can be hidden by using complex chains of ownership of legal persons and arrangements across many jurisdictions. In this way not just the beneficial owners of the assets but also how the assets were acquired and the reasons they are held can be hidden.
The owners can increase the chances of anonymity using mechanisms such as bearer shares or nominee shareholders or directors. They may also use entities such as trusts, shell companies or inactive companies and similar structures, to conceal the identity of the beneficial owners from tax authorities and other law enforcement agencies.
