As the US tops the tax secrecy list, lawmakers are focusing on beneficial owners.

At a time when the US is accused of being the world's largest enabler of financial secrecy, the US Congress added $52 million to Treasury funds on Thursday, May 19, to finalize the Corporate Transparency Act (CTA).

The US is ranked first in the TJN's biennial Financial Secrecy Index, which ranks tax haven countries based on their offshore financial activities. Switzerland and Singapore are second and third, respectively.


According to TJN CEO Alex Cobham, beneficial ownership registers such as the CTA will address international tax revenue losses as well as aggressive tax schemes involving trusts and other financial vehicles.


"We estimate the combined global revenue loss from cross-border tax abuse by people with undeclared offshore assets and multinational companies amount to some $483 billion a year," says Cobham, who is also urging several more countries to join the register.


Senators want the $52 million to go toward helping the Treasury's Financial Crimes Enforcement Network (FinCEN) finish the CTA framework by hiring more tax analysts to work on regulatory language and technology standardization.

The final rules should specify who and when beneficial ownership information must be reported. The Treasury Department, on the other hand, has yet to finalize the CTA's implementation or even set a deadline for its completion. US lawmakers have asked for an update on the implementation by May 23.


Despite this, FinCEN director Himamauli Das stated in a speech that the Treasury Department is making steady progress on the CTA.


"FinCEN is taking aggressive aim at those who exploit anonymous shell corporations, front companies, and other loopholes to launder the proceeds of crimes," Das said. "The [TJN] underscores that."


"While the US is joining global governments to locate and freeze Russian oligarch assets, kleptocrats and criminals are still able to hide and grow their financial assets with relative ease in the US," he continued.


After Russian billionaires were discovered hiding behind corporate structures, a bipartisan group of US senators called for additional Treasury funding to expedite the deployment of the CTA's final legal text.


Most legal entities will be required to file beneficial ownership information with the Treasury Department under the CTA. The rules are intended to protect the US financial system from profit-hiding shell companies and other entities.


The CTA will require taxpayers to reveal the ultimate beneficial owner of limited liability companies and a variety of other US-based entities.


According to Sandra Brummitt, chief tax and procurement officer at utility company NiSource in the United States, most businesses will struggle to adjust to increased tax reporting.


"Understanding all the rules and what sectors this legislation impacts specifically will take a couple years," she says.


Companies "need to start building partnerships so we know from an implementation perspective that we are doing the right things from gathering data to continuous compliance," according to Brummitt.


Because domestic and foreign entities are covered by the legislation, businesses with complex structures with multiple entities under the parent company may face overreporting issues. The CTA establishes a beneficial ownership register, which most businesses must report to.


Following the discovery of Russian-owned limited liability companies in some of their states, several US senators have proposed legislation to create more comprehensive state registers than the federal CTA.


After a Delaware LLC was linked to Russian billionaire Oleg Deripaska in May, Senator Brad Hoylman is supporting New York's LLC Transparency Act, which is more comprehensive than the CTA as a public register.


The CTA has limitations, according to Ian Gary, executive director of the Financial Accountability and Corporate Transparency (FACT) Coalition in Washington, DC, when compared to state-level registers.


"To be able to freeze and seize Russian oligarch assets, you need to know who owns them."


"The CTA directory will not be available to the public, and certain exemptions and other limitations in the CTA may continue to provide opacity in tax where New York and other states need greater transparency," Gary adds.


The CTA, on the other hand, stymies state legislation because trust companies and other corporate service providers argue that federal tax solutions are preferable to local ones. According to trust tax advisers, state laws requiring trust companies to disclose their identities may force them to relocate.


More accurate tax data is necessary for audits and other tax administrative tasks, but it would also enable businesses to reduce their transaction costs with suppliers.


Beneficial ownership information has been repeatedly highlighted as a key tax issue in court cases and scandals. It is one of the most important provisions for multinational enterprises (MNEs) seeking treaty benefits, and some businesses have even restructured as a result of it.


Both the UN Model Double Taxation Convention and the OECD commentary on tax treaties advocate for beneficial ownership tests to determine whether MNEs should be allowed to benefit from treaty benefits such as withholding tax exemptions.


In-house tax teams have told ITR that they are simplifying holding company structures to comply with beneficial ownership tests in the long run, as more countries improve tax transparency to clarify the beneficial owner.


Several events, including the TJN tax secrecy index, have enhanced the concept of beneficial ownership. While the United States and a few other countries have taken steps to establish beneficial ownership registers, such as the CTA, more countries are likely to follow suit in response to calls for greater tax transparency.


With the issue of beneficial ownership persisting, multilateral political support for greater tax transparency through local registers is growing.

By fLEXI tEAM