This article was first published on Tax@Hand, and is reproduced on this blog with the authorization of its authors.
On 19 June 2023, the European Commission proposed new rules for a common EU-wide system for withholding tax (WHT) on cross-border dividends or interest payments: Faster and Safer Tax Excess Refund (FASTER). The aim is to foster cross-border investment, tackle tax fraud, and simplify taxation. The proposed standardized procedures are estimated to save investors around EUR 5.17 billion per year and would also establish a means for tax authorities to share information and cooperate. A public consultation on the FASTER proposal runs through 15 August 2023. Once adopted by member states, the new procedures are expected to come into force on 1 January 2027.
Under the proposal, member states would be able to choose between one of two fast-track procedures complementing the existing standard refund procedure:
- A common EU relief at source system (with the WHT treaty rate applied at the time of the dividend/interest payment, avoiding double taxation); or
- Full payment of WHT at source at the rate of the member state from which the dividend/interest payment originates, but with a faster WHT refund process for any overpaid WHT (limited to 50 days from the date of payment).
A proposed common EU digital tax residence certificate (eTRC) is intended to make WHT relief faster and more efficient. The content of the eTRC would be standardized across all member states, and issued by the member state of residence, to identify the taxpayer and confirm that the taxpayer is resident in the member state according to its national rules. It is proposed that the eTRC would be valid for at least the full calendar year in which it is requested; however, an eTRC may be deemed invalid if the circumstances at the end of the year have changed and do not support the content of the eTRC issued during the year. The eTRC would be issued within one working day after the submission of a request and investors would require only a single eTRC to reclaim several refunds during the same calendar year.
Large EU financial intermediaries would be required to join a national register of certified financial intermediaries and report the payment of dividends or interest to the relevant tax authority, to allow the latter to check eligibility for the reduced rate and detect abuse. The register would also be open to non-EU and smaller EU financial intermediaries on a voluntary basis. Taxpayers investing in the EU through certified financial intermediaries would benefit from fast-track WHT procedures and avoid double taxation on dividend payments.
Certified financial intermediaries would be required to have adequate procedures in place to ensure taxpayers are eligible for the refunds. Such intermediaries would be required to obtain the eTRC of the taxpayer or the appropriate proof of residence in a non-EU country, and verify this information against their own records. They would also need to obtain a statement indicating that the taxpayer is the beneficial owner of the security and that the taxpayer has not engaged in any financial arrangement that is linked to the dividend/interest payment on the underlying securities.
Content provided by Deloitte Luxembourg.
