The Transparency Tax: Discouraging firm ownership via tax havens in Ecuador

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How can countries leverage ownership registries to curb tax haven usage and raise business ownership transparency? We address this question by analyzing Ecuador's business income tax surcharge on firms whose owners are tax havens residents. We estimate a set of difference-in-differences designs that compare the behavior of baseline haven-owned firms against other foreign-owned firms. The reform induced 20 percent of haven-owned firms to report terminal owners outside havens, with new owners predominantly identified as individuals rather than firms, thereby enhancing beneficial ownership transparency. Exposed firms increase tax payments in Ecuador by 17 percent, with no discernible effect on payroll and investment. These findings suggest that pairing a “flashlight” (ownership registry) with a “stick” (tax surcharge) can improve transparency and reduce tax erosion at a limited efficiency cost.