INTERNATIONAL TAX PLAZA - The opinion of the EESC on the Proposal for a Council Directive on Faster and Safer Relief of Excess Withholding Taxes has been published in the Official Journal of the EU

On March 5, 2024 the opinion of the European Economic and Social Committee (EESC) on the Proposal for a Council Directive on Faster and Safer Relief of Excess Withholding Taxes has been published in the Official Journal of the European Union. The opinion of the EESC is positive with some recommendations.

The conclusions and recommendations of the EESC can be summarized as follows:

The European Economic and Social Committee (EESC) supports the Commission’s objective of avoiding double taxation and complicated procedures for reduced rates to the detriment of investors holding securities in a transnational context. Faster and more efficient procedures will support cross-border investments in the interest of the internal market.
The EESC appreciates the added value that the Commission proposal could bring in order to support cross-border investments across the EU, especially for retail investors, by achieving substantial procedural simplification. The proposal is hence in line with the objective of establishing a capital markets union and enhancing the overall competitiveness of the internal market.
The EESC appreciates the Commission’s efforts to tackle fraud and tax abuse regarding withholding tax reclaim schemes (Cum/Ex and Cum/Cum fraud), which will lead to a fairer taxation system across the Member States and enhanced collection of tax revenue, as well as encouraging better cooperation between tax authorities.
The EESC notes that the Commission proposal is in line with the recommendations made by the European Securities and Markets Authority (ESMA) in its Final report on Cum/Ex, Cum/Cum and withholding tax reclaim schemes, which urged specific action at EU level in order to fight fraud and abuse.
The EESC welcomes the introduction of the electronic tax residence certificate (eTRC), a uniform, EU-wide document that will improve the timing of refunds and so benefit transnational investors. The EESC suggests that the eTRC might be used to simplify issues in addition to those already covered in the proposal.
The EESC underlines that the Commission expects the proposal to deliver significant cost savings compared to the status quo and encourages the Commission to periodically verify whether such savings are actually achieved.
Financial institutions must register with each Member State, and so the Commission expects increased compliance costs in the short term, which should decrease over time leading to substantial advantages in the long run. In this respect, the EESC recommends targeted efforts to keep compliance costs as low as possible in the initial phase of implementation of the new rules.
The EESC agrees with the Commission’s choice to establish a de minimis threshold, whereby investors with dividend payments below a threshold of EUR 1 000 are not asked to provide information about financial arrangements or minimum holding periods. This choice seems to strike a balance between the effectiveness of the new rules for the benefit of the internal market and investors, and the need for simplification by avoiding excessively burdensome duties on small amounts of securities held.
The EESC encourages Member States to swiftly provide the Commission, during the implementation period, with annual reports on statistics regarding how many excess withholding tax (WHT) reclaims are refunded/relieved both within and after the timeframe in order to ensure that WHT reclaims are gradually refunded/relieved within the ambitious timeframe of no more than 25 days set by the Commission proposal.
The EESC notes that the potential penalties against financial intermediaries stipulated in Article 17 of the proposal are delegated to Member States. The penalties should be effective and dissuasive, proportionate and reasonable in order to combine swift implementation of the new rules with the need for financial intermediaries to adapt to the new regulatory approach embraced by the Commission.

The full text of the opinion of the EESC as published in the Official Journal of the European Union of March 5, 2023 can be found here.

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