The paper presents an advanced scheme for the shunt compensation of distribution systems that can significantly improve the harmonic profile of power lines without increasing the system complexity and size. The scheme employs a transformerless arrangement of three-level GTO inverters that can generate a five-level output. A gate control is developed that fully utilizes the capabilities of this arrangement to provide twelve-pulse operation for the compensator. The proposed compensator can connect directly to the distribution grid without a transformer. The effectiveness and performance of the proposed compensator are tested through simulated studies on a 13.8 kV distribution system.