EU Council agrees on new rules for withholding tax procedures (FASTER)

Currently, most Member States impose withholding taxes on dividends and interest from bonds distributed to foreign investors. Nonetheless, investors are still obliged to pay income tax in their country of residence in connection with such income, and typically file for a refund of overpaid taxes. Presently, such refund procedures are often lengthy, and involve a degree of bureaucracy, resulting in dissatisfaction among investors and discouraging cross-border investment within and into the EU. The initiative seeks to tackle these various challenges.
 

Simplifying Withholding Tax Procedures

One of the primary objectives of the agreement is to simplify the process of withholding taxes on cross-border investment. This simplification is expected to reduce administrative burdens for businesses operating across EU borders, while also ensuring greater efficiency and accuracy in tax collection. Whereas currently most Member States rely on paper-based procedures, investors having a diversified portfolio across the EU will only require one digital tax residence certificate to claim refund in any Member State. 

The Directive allows member states to have two fast-track procedures, in addition to the current refund procedures for withholding tax. Member states could opt for both a “relief at source” procedure and a “quick refund” system. 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.
 

Introduction of a Centralised Electronic System

A key feature of the Council Directive is the introduction of a national register for certified financial intermediaries and an EU certified financial intermediary portal. The portal will act as a website where the national registers will be accessible. Once registered, the financial intermediaries will need to report the relevant information to the tax authorities so that the relevant cross-border transactions can be traced. The agreement also includes provisions aimed at improving cooperation between tax authorities and financial institutions. By strengthening information-sharing mechanisms and collaboration between these entities, the EU seeks to enhance tax enforcement measures and combat tax evasion more effectively.
 

Conclusion

The agreement on new rules for withholding tax procedures represents a significant step forward in the EU's efforts to modernise its tax systems and enhance tax compliance. The EU is poised to create a more efficient and equitable tax environment that supports economic growth and prosperity for all member states. Member states will have to transpose the directive into national legislation by 31st December 2028, with the national rules becoming applicable as from the 1st of January 2030. 
 

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