Remaining Private: The Double-edged Sword Of PARBOs

The widescale introduction of PARBOs was intended to extend access to existing private registers held by official regulators and registrars (and already available to international tax authorities and law enforcement agencies) to allow anyone to find out who is the ultimate owner or beneficiary of an asset.

So, if there are already easily accessible private registers that tax authorities and law enforcement agencies can use to prevent money laundering, tax evasion, and criminal financing activities, what is the disease that the PARBO remedy was designed to cure? Well, quite simply, there isn’t one, other than an overwhelming political desire to force transparency, and in doing so, create a sure vote-winner by shining a light on the (supposedly) dark corners in which hide white-collar enemies of the law-abiding, tax-paying working class.

The trouble for the United Kingdom, European Union and others is that public registers are fundamentally at odds with the right to privacy, something that the European Court of Justice noted in their November 2022 ruling that was made in response to a request by Luxembourg. Indeed, the existing rules on public registers for member states were too loosely framed, and granted overly wide access to information without properly justifying the interference into people’s right to privacy.

The judgement has been widely welcomed as a commonsense reaction to what many have perceived as overreach by the European Union. As a result, several member states have removed their registers from public view. A number of Crown Dependencies and Overseas Territories who were due to bring in PARBOs at the end of 2023 have followed their lead, and the registers remain private for now.

The legislation is on life support as more international finance centres choose to continue to comply with data protection and privacy law and not implement its requirements. So where next for PARBOs?

Recent Developments And Media Silence

The media interest in the implications of the European Court of Justice’s ruling has been cacophonous in its absence, which probably reflects the level of public disinterest in something that was never really an issue for most people in the first place.

The most important implication of the European Court of Justice’s ruling is that it reasserts the primacy of the European Union’s human rights and privacy laws, something that a different ruling could have put in jeopardy. Unrestricted access to information about owners could have placed those not within the relatively safe jurisdictions of Western Europe and North America in danger of kidnapping, fraud, or worse, particularly those residing primarily in the more politically unstable parts of South America or Asia. The increasing number of high and ultra-high net worth individuals in these areas seeking safety for part of their wealth in neutral, globally-accessible centres makes the commitment to the fundamental human right to privacy ever more important.

Abiding by the European Court of Justice’s ruling also enables small international finance centres to compete more effectively with counterparts such as those in the United Arab Emirates. Imposing the requirement for PARBOs on small centres would have inevitably tilted the playing field towards larger international finance centres not subject to the legislation, and that would have appeared more attractive to those asset owners wanting to retain their previous right to privacy. There were indications that some such individuals and corporations were preparing for the implementation of PARBOs by moving their wealth away from smaller international finance centres such as the British Virgin Islands, Cayman Islands and Mauritius, to rapidly developing, larger centres such as Abu Dhabi. Enabling registers of beneficial owners to remain private to those who absolutely need access, and not just those who want access, removes some of these potential incentives for high net worth individuals and corporations to move their assets out of small international finance centres.

While the above suggests that the European Court of Justice’s ruling is a win for small international finance centres, the reality is more complicated.

The push for PARBOs has not gone away, and in light of the Court’s judgement, it is likely that implementation has merely been postponed as the text of the legislation continues to be rewritten and tightened. The Crown Dependencies and Overseas Territories are mainly holding their line for the time being on the basis of their desire to be fully-compliant with international law, but it is unclear for how long this will be possible, especially if new legislation can demonstrate compatibility with existing privacy, data protection, and human rights law.

It can also be argued that choosing to remain compliant with international law and not implement PARBOs has provided grist to the mills of tax justice campaigners who remain committed to increased transparency. Their unfounded accusation that offshore centres are helping large corporations and high net worth individuals evade millions of dollars in tax from countries (particularly in the Global South) could become amplified without public registers. This, in turn, places a greater requirement on offshore centres to continuously prove their value, and demonstrate how existing legislation and structures designed to mediate investment create and sustain growth and jobs.

And it should, of course, be remembered that many island economies are based on their international finance centre, and how it provides skilled professional service jobs and inward-foreign direct investment opportunities that stimulate growth and fund public services. The introduction of PARBOs in small international finance centres, and the flight of assets away to larger centres with no similar requirements, would therefore lead to lost jobs and opportunities as professional service providers choose to reduce or cease their activities. This could be catastrophic for small island economies.

What Is The Way Forward?

This will ultimately be determined by the direction taken by the global economy. We have seen globalisation weaken since the global finance crisis of 2007/08 and there are few signs that we will continue on the path to ‘unfettered globalisation’ in the short-term, given ongoing geopolitical tensions in Africa, Latin America, the Middle East, and Europe. Uncertainty caused by the US Presidential election in November will further encourage caution as the world waits to see which direction the United States takes in the next four years.

We see the more likely long-term scenario for the global economy as being one of ‘weaker internationalism’, where pre-pandemic globalisation trends continue at a slower rate and geopolitical uncertainty persists. In this scenario, the introduction of PARBOs will lead to winners and losers amongst international finance centres as global regulatory integration slows, and different regional economic trading blocs adopt different approaches to the openness of their beneficial ownership registers. If this happens, then those centres that are unlucky enough to have to implement PARBOs could see companies and other economic entities leaving and registering in a jurisdiction where there is no public access to their beneficial ownership information. This could be a potentially significant issue for international finance centres that have high volumes of Latin American and Asian business.

There is, though, likely to be a difference depending on the type of economic entity. Under the scenario above, we would only expect to see a small proportion of high value, low volume corporate structuring activity based in international finance centres to be affected by the introduction of PARBOs. Whilst commercial confidentiality is often critical, the public can often find beneficial ownership information on large corporates, either through share registers or other corporate finance reporting mechanisms. We would expect the same low impact for investment businesses and vessel or aircraft registration entities. However, for high volume, low value family trust and succession planning entities, there is likely to be a flight to more private jurisdictions on the introduction of PARBOs, as there would be for real estate holding companies and entities holding digital assets such as cryptocurrencies.

The impact on each international finance centre will therefore be as much a function of the balance of business they facilitate and the location of the beneficial owner as it will be on the introduction of PARBOs. For example, whilst beneficial owners in Latin America and Asia are likely to want greater privacy irrespective of the purpose of the economic entity, those in the United States, Europe, and the United Kingdom, are less likely to see a need (or push) to move jurisdiction.

But it isn’t just global macroeconomic trends that will affect the potential impact of PARBOs on international finance centres: tax regime changes in individual economies within the G7 will also have an impact. For example, the United Kingdom’s Spring 2024 budget saw significant changes to the tax regime for ‘non-doms’ from April 2025. In 2022, the 69,000 non-domiciled taxpayers (both UK and non-UK resident) contributed £8.5 billion in income tax, capital gains tax, and national insurance contributions. Since 2008, the number of non-doms has halved, but the value of the taxes liable has only dropped by three per cent, perhaps indicating that the non-doms who have left are the ones contributing lower taxes. 

The new regime will designate those previous ‘non-doms’ as being liable for United Kingdom taxes on overseas earnings after four years of tax residency, through which period 100 per cent tax relief will be given as an incentive to increase inward foreign direct investment. After this period, all earnings from the United Kingdom and Overseas will be subject to United Kingdom taxes, including profits (but not inheritance tax) on Trusts which are currently exempt under the ‘protected settlement status’ rules.

Clearly this could have an impact on international finance centres, both positively and negatively. The new regime combined with the greater introduction of PARBOs could, if it works as intended, increase the asset inflows into the United Kingdom and away from international finance centres, as there would be less benefit to holding assets offshore if there is no significant tax advantage. Alternatively, the introduction of PARBOs in only a minority of international finance centres might actually limit the desired investable asset inflows into the United Kingdom. In this scenario, beneficial owners may just choose to move their assets to jurisdictions, which have committed to not implementing PARBOs given that they will be taxed the same. The United States, with its recently implemented Corporate Transparency Act, is one such example of a potentially attractive transfer destination.

PARBOs, therefore, are a double-edged sword for beneficial owners, international finance centres, and national governments. Where there are losers on their implementation, there are also winners: treading carefully as you navigate what remains a complex and uncertain landscape will therefore be critical in the short and long term.

Paul Marshall
Paul is Pragmatix Advisory’s director responsible for strategy and governance research. Having spent more than twenty years working in higher education, he has a depth of expertise in supporting C-suite leaders develop and implement robust strategies for complex organisations in regulated markets where government policy is decisive but often unpredictable. Paul is a Fellow of the Royal Society of Arts, a chartered governance professional and currently studying for an MSc in Global Finance at Bayes (previously Cass) Business School in London.

Rebecca Munro
With a focus on islands and IFCs, Rebecca works on a wide variety of Pragmatix Advisory projects, especially those with a social, economic or public policy dimension. She is an active member of her community on the Isle of Mull. She led the first successful community purchase of land, the Isle of Ulva, under new Scottish legislation and has spearheaded the building of new affordable homes for islanders. Rebecca holds a first-class honours degree in politics, philosophy and economics from the Open University, which she earned while owning and managing her own hospitality business.