FASTER – The EU Commission’s proposal to ease withholding tax procedures
The European Commission has introduced a draft directive to ease the withholding tax procedures in the European Union, which are often seen as burdensome, costly, and lengthy. This proposal is a crucial part of the EU's efforts to modernise business taxation and support cross-border investment while combating tax fraud. Withholding tax, which affects investors earning income in different EU Member States, has been a complex process due to multiple procedures and paperwork different from a country to the other.
Key proposed reforms
The European Commission's proposal aims to simplify and expedite withholding tax relief procedures while tackling abusive tax practices with regards withholding tax procedures. The key measures can be summarized as follows:
Common EU digital tax residence certificate: The introduction of a standardised digital tax residence certificate will expedite the withholding tax relief process. For instance, investors with a diverse EU portfolio will only need one digital tax residence certificate to claim multiple refunds in a single calendar year. The digital certificate will be issued within one working day of the request, in contrast to many Member States' current reliance on paper-based procedures.
Fast-track procedures: The proposal introduces two fast-track procedures in addition to the existing standard refund process – "relief at source" and "quick refund." Member States will have the flexibility to choose between these procedures or even opt for a combination of both.
Under the "relief at source" procedure, the exemption or reduced tax rate will be directly applied to dividend or interest payment, without the need to file a tax reclaim.
In the "quick refund" procedure, the initial payment will consider the withholding tax rate of the Member State where dividends or interest are paid, with refunds for overpaid taxes to be granted within 50 days from the payment date.
These standardised procedures are projected to save investors approximately €5.17 billion annually including € 730 million of paperwork cost.
Standardised reporting obligation
To enhance the ability of national tax authorities to confirm eligibility for exemption or reduced tax rates and identify potential misuse, a standardised reporting requirement will be established. Certified financial intermediaries will be obliged to report dividend and interest payments to the pertinent tax authorities, enabling the tracking of transactions. Major financial intermediaries within the EU will be compelled to become part of a national registry of certified financial intermediaries. This registry will also be accessible to non-EU entities and smaller EU financial intermediaries on a voluntary basis. Investors who utilise certified financial intermediaries will gain access to expedited withholding tax procedures, preventing double taxation on dividends. The more financial intermediaries that participate in this system, the more efficient the processing of refund requests by tax authorities, regardless of the chosen procedure.
Once adopted by Member States, the proposed reforms are expected to come into effect on 1 January 2027. These changes represent a significant step toward creating a more efficient and secure withholding tax system within the EU, encouraging cross-border investment and reducing the burden on investors and financial intermediaries.
For more information on the European Commission’s proposal and the legislative texts can be found here and here.
