How researchers have used Orbis to uncover offshore financial centres

An important new academic paper has used Big Data to examine so-called offshore financial centres, generating findings that might surprise anyone interested in tax and transfer pricing.

"Multinational corporations use highly complex structures of parents and subsidiaries to organize their operations and ownership," say the authors in the abstract to the paper, published last month in the journal Nature and entitled Uncovering Offshore Financial Centers: Conduits and Sinks in the Global Corporate Ownership Network.

They continue: "Offshore Financial Centers (OFCs) facilitate these structures through low taxation and lenient regulation, but are increasingly under scrutiny, for instance for enabling tax avoidance. Therefore, the identification of OFC jurisdictions has become a politicized and contested issue. We introduce a novel data-driven approach for identifying OFCs based on the global corporate ownership network."

This quantitative identification exercise – the first of its kind – was made possible through the researchers' use of company ownership data on Bureau van Dijk's Orbis database, described by the authors as "a unique and frequently used information provider that covers about 200 million* public and private firms compiled from official country registrars and other country collection agencies".

By using Orbis data for "each available company, [the authors] extracted its operating revenue, country, city, sector, global ultimate owner (the parent firm who owns at least 50% of the company directly or indirectly and is not itself owned by any other firm) and all ownership relationships, with the direct and total ownership percentage. The resulting dataset contains 71,201,304 distinct ownership relationships between 98,255,206 companies." 

Much of their cross-border research hinged on examining "global ownership chains" and in differentiating between two types of OFC:

• "Sink-OFCs", which "attract and retain foreign capital" – they identify 24 of these – and
• "Conduit-OFCs", which "are attractive intermediate destinations in the routing of international investments and enable the transfer of capital without taxation" – they highlight the Netherlands, United Kingdom, Ireland, Singapore and Switzerland as principal examples.

"Against the idea of OFCs as exotic small islands that cannot be regulated, we show that many sink and conduit-OFCs are highly developed countries," say the authors.

Too numerous to list in full, other findings include the observations:

• That "the Netherlands is the conduit between European companies and Luxembourg";
• That the "United Kingdom is the conduit between European countries and former members of the British Empire, such as Hong Kong, Jersey, Guernsey or Bermuda";
• That "Hong Kong and Luxembourg, being themselves sink-OFCs, also serve as the main countries in the route to typical tax havens (British Virgin Islands, Cayman Islands and Bermuda)"; and
• That the "specialization is not only geographical, but also present at the sector level".

Read the full paper.

*At the time of writing, Orbis holds information on 245 million companies.