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The author is the founder of Tax Policy Associates, a think tank
Extraterritorial secrecy is a serious problem. Tax evasion, tax evasion, sanctions evasion, drug cartels, corruption, questionable PPE contracts and untraceable political donations – all made possible by offshore companies whose ownership and accounts are hidden in public view.
We should not focus solely on “tax havens.” The two countries in Europe with the lowest corporate transparency ratings from OpenCorporates are not Jersey and Guernsey, they are Austria and Spain. Sadly, the UK mainland is also fit.
The current Government, like its predecessors, is committed to ensuring that the British Overseas Territories and Crown Dependencies adopt the highest standards of transparency – public registers of beneficial ownership. But since 2018, progress has been painfully slow, and was further slowed by a decision by the EU Court of Justice that led some member countries to close access to their records.
What is urgently needed is a way to speed up beneficial ownership registrations, everywhere. And we shouldn’t stop there. If you are setting up a company in the UK, the directors, beneficial owners and accounts are all public. Why accept lower standards for foreign companies doing business here? It is in most countries’ interest to end business secrecy. The reason progress has been so difficult is paradoxical: the more countries end corporate secrecy, the more valuable the secret becomes and the greater the incentive for other countries to maintain it. And that’s where the bad actors go.
This type of problem has been solved before. In 2010, the United States passed its Fatca law, with a simple concept: banks around the world could voluntarily report American account holders to the IRS. They were not required to do so, but those who did not would be subject to a 30 percent U.S. withholding tax. Almost every country in the world now automatically reports bank accounts to the tax authority of the account holders’ home country, with more than €12 trillion of accounts reported each year.
A similar remedy could work today with our proposed “transparency tax”: 10 per cent applied by the UK to financial payments to “undisclosed companies”, those that do not publish details of their directors, shareholders, beneficial owners and accounts. . Undeclared companies would also be excluded from public procurement.
For many companies around the world, this would be irrelevant as they already publish this information in the corporate registry of their home country. The critical element is that companies from countries without open registries could voluntarily publish their information on Companies House.
I doubt many actually paid the tax. But the threat would end corporate secrecy for all companies doing business with the UK. This simple innovation could transform corporate transparency around the world.
One obvious criticism is that the transparency tax could deter companies from transacting with the UK. This, however, is implausible. Legitimate companies do not need to hide their ownership. The cost of compliance would be extremely low (much lower than Fatca). And I don’t know of any company that fled the UK when it introduced an open register of beneficial owners.
The transparency tax could initially be adopted by the UK alone or together with other countries. Others could follow when they are ready, either by creating their own system or simply cross-referencing Companies House.
Once a critical mass of countries began applying the tax, corporate secrecy would be a thing of the past. Instead of a race to the bottom, we would have a “race to the top.” Offshore financial centers (and everyone else) would open corporate registers in their own interest, so that none of their companies would be subject to the tax.
New Foreign Secretary David Lammy says he wants to make the UK the “anti-corruption capital of the world”. This is one way to do it.