INTERNATIONAL TAX PLAZA - The European Commission released a Proposal for a Council Directive on Faster and Safer Relief of Excess Withholding Taxes for consultation

On June 19, 2023 the European Commission released a Proposal for a Council Directive on Faster and Safer Relief of Excess Withholding Taxes for feedback. The feedback period runs from June 19, 2023 until August 14, 2023 (Midnight Brussels time).

First of all it should be noted that, if finally adopted, the Council Directive will only apply to the following 2 sources of income:

Dividends from publicly traded shares paid to registered owners; and
Interest from publicly traded bonds paid to registered owners.

The aim of the proposed new rules is to make withholding tax procedures in the EU more efficient and secure for investors, financial intermediaries (e.g. banks) and Member State tax administrations.

Currently, the withholding tax procedures applied in each Member State are very different. Investors have to deal with more than 450 different forms across the EU, most of which are only available in national languages and refund procedures are often lengthy, costly and cumbersome, causing frustration for investors and discouraging cross-border investment within and into the EU.

Key actions of the proposed new rules aim to make life easier for investors, financial intermediaries and national tax authorities:

A common EU digital tax residence certificate will make withholding tax relief procedures faster and more efficient. For example, investors with a diversified portfolio in the EU will need only one digital tax residence certificate to reclaim several refunds during the same calendar year. The digital tax residence certificate should be issued within one working day after the submission of a request. At present, most Member States still rely on paper-based procedures.
Two fast-track procedures complementing the existing standard refund procedure: a “relief at source” procedure and a “quick refund” system, which will make the relief process faster and more harmonised across the EU. Member States will be able to choose which one to use – including a combination of both.
- Under the “relief at source” procedure, the tax rate applied at the time of payment of dividends or interest is directly based on the applicable rules of the double taxation treaty provisions.
- Under the “quick refund” procedure, the initial payment is made taking into account the withholding tax rate of the Member State where the dividends or interest is paid, but the refund for any overpaid taxes is granted within 50 days from the date of payment.
A standardised reporting obligation will provide national tax administrations with the necessary tools to check eligibility for the reduced rate and to detect potential abuse. Certified financial intermediaries will have to report the payment of dividends or interest to the relevant tax administration so that the latter can trace the transaction. In particular, large EU financial intermediaries will be required to join a national register of certified financial intermediaries. This register will also be open to non-EU and smaller EU financial intermediaries on a voluntary basis. Taxpayers investing in the EU through certified financial intermediaries will benefit from fast-track withholding tax procedures and avoid double taxation on dividend payments. The more financial intermediaries register, the easier it will be for tax authorities to process refund requests, regardless of the procedure used.

In respect to the consultation that the European Commission opened the following documents were published:

The Proposal for a Council Directive on Faster and Safer Relief of Excess Withholding Taxes;
ANNEXES to the Proposal for a Council Directive on Faster and Safer Relief of Excess Withholding Taxes;
A COMMISSION STAFF WORKING DOCUMENT - Subsidiarity Grid;
An IMPACT ASSESSMENT REPORT;
An opinion of the REGULATORY SCRUTINY BOARD on impact assessment; and
A COMMISSION STAFF WORKING DOCUMENT - EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT.

The consultation webpage where interested parties can give their feedback on the European Commission’s Proposal for a Council Directive on Faster and Safer Relief of Excess Withholding Taxes and from where you can downlaod the aforementioned documents can be found here.

Follow International Tax Plaza on Twitter (@IntTaxPlaza)