European Commission releases proposal for simplifying withholding tax procedures in the EU (“FASTER”)

According to the European Commission, approximately 70% of retail investors waive claims for refunds and 30% of retail investors sell their foreign EU stocks due to complicated refund procedures for WHT. On 19 June 2023 the Commission has published a proposal for a Directive for simplifying withholding tax procedures on interest and dividends, which shall become effective as per 1 January 2027 and contains the following key considerations:

Common EU digital tax residence certificate (eTRC)

A common digital tax residence certificate will be valid throughout the EU: It shall be issued within one working day upon application and shall be valid for at least one year.

Fast-track procedure for “relief at source” and a “quick refund system”

Member States should implement at least one fast-track procedure or choose to provide for a combination of both: Under the new “relief at source” procedure, the tax rate applied at the time of payment of dividends or interest is directly based on the applicable rules of the double taxation treaty provisions. Under the “quick refund” procedure, the initial payment is made taking into account the withholding tax rate of the Member State where the dividends or interest is paid. The refund for any overpaid taxes is granted within 50 days from the date of payment.

Standardised reporting obligation

Certified financial intermediaries will have to report the payment of dividends or interest to the relevant tax administration. In particular, large EU financial intermediaries will be required to join a national register of certified financial intermediaries and comply with their standardised reporting obligation.