07 January 2021

MEP Giegold: We need to ensure a level playing-field on financial services post-Brexit: our letter to the Commission

Dear friends and all those who are interested,

The Brexit deal reached on Christmas Eve was a great relief, followed by a rather rude awakening: our preliminary analysis suggests that the draft agreement could open the door for accelerated tax competition between the UK and the EU. For this reason, Philippe Lamberts, the Co-President of the Greens/EFA group in the European Parliament, and I have sent a letter to Commission President Ursula von der Leyen and Chief Negotiator Michel Barnier detailing our concerns. Currently, the trade and cooperation agreement between the EU and the UK is only provisional, as the European Parliament needs more time to scrutinise the 1,250-page-long agreement. The inclusion of effective provisions to guarantee a level playing field on financial services rules between the EU and the UK after Brexit will be of high importance as we consider our agreement to the compromise found on Christmas Eve.

Currently, the text contains only weak provisions on corporate tax rates and tax avoidance, tax havens and money laundering. This gives us serious cause for concern regarding our ability to ensure high standards on taxation and anti-money laundering in the UK going forward. High standards shared by the EU and the UK in the years to come are crucial to maintaining fair competition as we trade with one another and have access to each other’s financial services sector. We cannot accept the prospect of a “Singapore on Thames”. The financial sector in Singapore has profited greatly from weak laws to combat money laundering and tax avoidance. The City of London must not be able to copy this model to attract even more dirty money.

Why are we so worried? In a nutshell, our most serious concern is due to the fact that taxation is excluded from the rebalancing provisions in the Brexit Deal which are intended to tackle possible regulatory differences between the EU and the UK in the future. There are rebalancing provisions on trade for example, to ensure the application of common binding principles on state aid, climate and social issues. If one side finds that standards are diverging, it can ultimately implement measures to address this misalignment. There are currently no such rebalancing provisions for divergent rules on tax and money laundering. This is worrying as a whole number of tax rules which were proposed by the European Commission and supported by the European Parliament are currently waiting for approval by the Council of the EU. As soon as these new European tax laws will come into force, they will by no means be covered by the deal. The same applies to the still outstanding common rules on minimum taxation of corporate profits and common rules for the transfer of profits out of the Union. Moreover, anti-money laundering provisions are not covered by the rebalancing rules either. Thus, the alignment of evolving EU standards to tackle dirty money is not guaranteed either. Because we recognize that our own rules against money laundering and terrorist financing are inadequate, the EU has far reaching plans to strengthen them in 2021. Hence, it is highly worrying if these improvements weren’t covered by the rebalancing rules.

Looking ahead, we want to make sure that the EU gets the strongest possible commitments from the UK to refrain from tax dumping. How could this work in practice? At the moment, there is very little on financial services in the draft agreement. This means that financial firms operating from London will not automatically receive access to the EU’s single market for financial services with this agreement. Instead, an equivalence regime is required before such access can be granted. The equivalence regime is supposed to ensure the effective alignment of standards between our respective financial sectors. Considering the threat of a Singapore on Thames, we strongly recommend that the EU uses the leverage it holds over the United Kingdom in granting or refusing access to its single market for financial services based on the (mis)alignment of standards. The EU needs robust commitments against tax dumping and money laundering! This matter must be thoroughly addressed before any equivalence decisions are taken. Likewise, we must evaluate the local substance requirements for financial firms registered in the common market but de facto operated outside of the EU. We would particularly welcome a new Communication by the Commission, clarifying the conditions under which the EU is able to grant access to the single market on financial services to the UK or not. The EU needs to agree on a strong stance on the matter, as the Parliament has demanded in previous declarations.

To put it frankly, while it was a member of the EU, the UK’s tax rules were a costly burden for the other member states. We cannot accept this burden being imposed by a third country, especially in the context of the Covid related stress on public budgets. Thus, while we warmly welcome the fact that a draft agreement could be found after years of negotiations. Nevertheless, the European Union should use its tools in order to end the web of tax havens operating in connection with the UK.

You can read the full letter we sent to Commission President Ursula von der Leyen and Chief Negotiator Michel Barnier here: https://sven-giegold.de/wp-content/uploads/2021/01/04.01.2021-Greens-EFA-Letter-to-Barnier-and-President-von-der-Leyen-on-EU-UK-financial-services-deal.pdf

With determined European greetings,

© European Parliament