The Commission welcomes the general approach announced by the Belgian Presidency of the EU Council on the Commission's proposal for a Directive to make withholding tax procedures in the EU more efficient, secure and simplified for investors, financial intermediaries and Member State tax administrations. A key initiative to ensure fair taxation and reinforce the Capital Markets Union, this initiative will digitise tax relief procedures and bring more transparency.
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.
Next steps
Following a re-consultation with the European Parliament, EU Finance Ministers are expected to adopt the proposal early 2025. Implementation work will start soon after adoption.
Background
In the case of cross-border investments, many Member States levy withholding taxes on dividends and on the interest from bonds paid to investors who live abroad. However, investors still must pay income tax in their country of residence for the same income and often need to submit a refund claim for excess tax paid. Currently, these refund procedures are often lengthy, costly, and cumbersome, causing frustration for investors and discouraging cross-border investment within and into the EU. Moreover, scandals like the Cum/Ex and Cum/Cum have shown that such refund procedures can be abused. For example, these types of fraud were estimated to have led to €150 billion in losses between the years 2000 and 2020 for a certain group of Member States. The action aims to address all these problems.
