The EU has approved a directive which aims to facilitate the recovery of withholding tax abroad.
The directive 'FASTER' aims to simplify the reclamation procedure for tax levied abroad. When money is received from abroad it is generally taxed twice: once by the country of origin and again in the country of residence. Many countries have signed double taxation treaties to avoid this issue but implementation is often complicated.
The directive "will make investing in other countries easier and hopefully encourage retail investors in particular to invest on European financial markets, which will eventually benefit the whole economy," said Finance Minister Vincent Van Peteghem (CD&V). The measure will benefit cross-border investors, national tax authorities and financial intermediaries such as banks and investment platforms.
The directive will make tax relief procedures "faster, simpler and, at the same time, more secure," and will also introduce a digital tax residence certificate (eTRC) for every investor within 14 days of their request. The certificate can then be used for two separate procedures which will ultimately reduce taxation on the income in question.
In the first procedure, excess withholding tax is "quickly" refunded and requests must be processed within 60 days. In the second one, withholding tax in the country of origin will be reduced at the time of deduction.
Complex implementation
L’Echo notes that banks have a large role to play in implementation, which is expected to be complex. They will be responsible for claiming tax on behalf of investors, which requires them to register as a certified financial intermediary. Large banks will be obliged to acquire this status and smaller establishments will be forced to do so in order to remain competitive.
Member States have until 2028 to transpose 'FASTER' into national legislation, and the law will come into force in 2030. Belgian financial federation Febelfin has expressed concern that because European countries have the choice to hold onto their current procedures rather than opt for the new ones, the directive will only complicate an already-tricky playing field.
