BDO Corporate Tax News

European Union - European Council agrees on new rules for withholding tax relief procedures

On 14 May 2024, the European Council agreed to the revised text of a European proposal for a directive (FASTER directive) that will make it easier for investors to reclaim withholding tax on certain dividends and interest payments or obtain an exemption at source (for prior coverage, see the tax alert dated 26 June 2023). Once the directive is approved, EU member states will be required to implement it into their national laws by 31 December 2028, with the new procedures applying as from 1 January 2030.
Overview of the FASTER directive
Under the FASTER directive, investors in the EU will be able to benefit from a reduced withholding tax rate on dividend and interest payments as set out in applicable tax treaties. It should be noted that the directive will apply only to dividend and interest payments on publicly traded shares and bonds.

The FASTER will allow EU member states to choose between two relief procedures that complement the existing withholding tax refund procedure:
  1. Relief at source: The withholding agent will apply the applicable tax treaty or domestic withholding tax rate at the time the payment is made; or
  2. Quick refund: At the request of a certified financial intermediary, the tax authority of the source member state will refund the excess tax withheld no later than 60 days after the end of the request period.
To facilitate these procedures, the directive provides for the introduction of a common digital tax residence certificate and a national register for certified financial intermediaries.
  • Digital tax residence certificate: Withholding tax relief procedures historically have been cumbersome, time consuming and costly. To reduce or eliminate these obstacles, a common digital EU tax residence certificate (eTRC) will be introduced that will be accepted by member states as proof of residence for withholding tax purposes and allow covered investors to benefit from the rapid relief from withholding tax.
EU member states will have to provide an automated procedure for issuing an eTRC to an individual or entity that is tax resident in their jurisdictions. The eTRC will have to be issued within 14 calendar days from the submission of a request and will be valid for one calendar year or financial year, as appropriate. Member states will be authorised to revoke an eTRC if the relevant party is not tax resident in their jurisdiction. 
  • National registers of certified financial intermediaries: FASTER also provides for a standardised reporting requirement for financial intermediaries. EU member states will be required to establish national registers of certified financial intermediaries for tax relief procedures and require financial intermediaries to register and report on relevant transactions. Only financial intermediaries (such as credit institutions and investment firms) that are certified will be able to make quick refund requests on behalf of their investors under FASTER. Financial intermediaries established outside the EU also will be eligible for certification unless they are established in a country on the EU tax blacklist or the Financial Action Task Force grey list. To prevent tax fraud, certified financial intermediaries will have to carry out due diligence to ascertain whether an investor is entitled to tax relief by collecting and assessing statements of residence and beneficial ownership using information obtained on their clients in the normal course of business. Member states will be able to remove a certified financial intermediary from their registry if the intermediary fails to comply with the rules or otherwise loses its certified financial intermediary status.
To simplify registration for financial intermediaries, the European Commission will set up and operate an EU portal for certified financial intermediaries where registration applications can be submitted. The portal will function as a central repository from which the national registers can be accessed. FASTER requires all major institutions processing dividend payments and interest payments to register.

Member states will have an option to maintain their current procedures, and not apply the directive in certain instances. Special rules will apply for indirect investments made via collective investment vehicles.
With the Council's agreement to the proposed directive, the FASTER directive is expected to enter into force soon but, because of the changes to the text, the European Parliament will be consulted first. The Council will then have to formally adopt the directive and publish it in the official journal of the EU.

The FASTER directive signals a new phase in making Europe's capital market more effective and competitive. Investors, listed companies and financial intermediaries will benefit.

Frederik Boulogne
Lisanne Rijff
BDO in Netherlands
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