EU Council strikes deal on new rules for withholding tax procedures

The EU Council reached a general approach agreement Tuesday on safer and faster procedures to obtain double taxation relief, expected to boost cross-border investment and help fight tax abuse. The so-called FASTER initiative aims to make withholding tax procedures in the EU safer and more efficient for cross-border investors, national tax authorities and financial intermediaries, such as banks or investment platforms.

The Council Directive includes several key actions:

• A common EU digital tax residence certificate will make withholding tax relief procedures faster, more efficient with a greater degree of simplification overall. For example, investors with a diversified portfolio across the EU will need only one digital tax residence certificate to reclaim their refunds in any Member State. 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, simpler and more harmonised across the EU. Member States will be able to choose which one to use. Under the “relief at source” procedure, the applicable lower tax rate is directly applied at the time of payment of dividends or interest. Under the “quick refund” procedure, withholding taxes are applied, but refunds for any overpaid taxes must be granted within 60 days of the refund request. These standardised procedures will save investors an estimated €5.17 billion per year.
• The creation of national registers for certified financial intermediaries and an EU certified financial intermediary portal: the portal will act as a single-entry point for the registration requests submitted by financial intermediaries and will provide information to the public on which financial intermediaries are certified in which Member State(s). Taxpayers investing in the EU through certified financial intermediaries registered on the portal will benefit from fast-track withholding tax procedures and avoid double taxation on dividend or interest payments.
• Standardised reporting obligations will provide national tax administrations with the necessary information to check the eligibility of taxpayers for the reduced rate and detect potential abuse. Certified financial intermediaries (e.g., banks) will have to report data related to the payment of dividends or interest to the relevant tax administrations so that the latter can trace the payments from the company paying the dividends all the way to the ultimate investor.
• Following a re-consultation with the European Parliament, EU Finance Ministers are expected to adopt the proposal in early 2025. Implementation work will start soon after adoption.

Source: EUbusiness