Answer given by Mr Gentiloni on behalf of the European Commission (9.4.2021)
The EU-United Kingdom (UK) Trade and Cooperation Agreement (TCA) provides for ambitious commitments in taxation. Firstly, the UK has made a commitment to abide by the principles of tax good governance1 . Building on this, the UK has agreed to a non-regression clause on tax transparency and anti-tax avoidance2 . Finally, the EU and UK have committed to apply principles on countering harmful tax regimes in accordance with a Joint Political Declaration.
The TCA does not apply to UK Overseas Territories, but under the political declaration, the UK is committed to encourage them to comply with its principles. Given the potentially far-reaching reforms in the pipeline for international corporate taxation the application of rebalancing measures to the tax provisions of the TCA would have been overly complex and impossible to administer.
The anti-money laundering chapter of the TCA identifies the Financial Action Task Force recommendations as the reference against which UK and EU standards should be upgraded. Thus, this chapter could not be part of the level-playing field that the rebalancing rule aims to maintain.
The EU retains tools to protect the internal market in case UK standards were to fall short. Decisions on equivalence are taken by the Commission, after a rigorous assessment of the regulatory and supervisory framework.
The Commission also considers whether equivalence would be compatible with EU priorities in areas such as the fight against money laundering and terrorist financing (AML/CFT), or tax good governance. This would include assessing the impact of the listing of a third country on the EU list of non-cooperative tax jurisdictions, or amongst high-risk third countries presenting strategic deficiencies in their AML/CFT framework.
1 Article 5.1 Good Governance
2 Article 5.2 Taxation Standards