With the aim of streamlining and accelerating tax relief procedures for investors in the European Union, the European Commission has presented the FASTER proposal. The initiative aims to address the cumbersome and non-harmonized processes currently in place, which often deter cross-border investment and leave room for fraudulent activity.
Currently, when an EU resident invests in securities in another member state, they are subject to withholding tax in the country of origin. To avoid double taxation, investors must request a refund of excess tax withheld. However, existing repair procedures are complex, based on paper documents and vary between Member States, discouraging investors and giving fraudsters the opportunity to exploit the system.
Under the FASTER proposal, Member States can choose between implementing a “relief at source” system or a “rapid reimbursement” system. These options aim to accelerate and simplify withholding tax relief for investors, promoting cross-border investments within the EU. Furthermore, the proposal introduces safeguards to prevent tax abuse, particularly in cases such as cum-ex fraud.
Key elements of the proposal
Digital Residency Certificate (eTRC): The proposal introduces a harmonized digital residency certificate to streamline the process of verifying residency for tax purposes. This digital certificate will replace the current paper system, reducing administrative burdens and improving efficiency. Reporting obligations for financial intermediaries: Financial intermediaries will be required to register in a national register of financial intermediaries and report relevant information on dividend and interest payments. This measure aims to strengthen transparency and prevent tax abuse. Withholding relief and rapid refund procedures: Member States may choose to implement either a withholding relief system or a rapid refund system to accelerate the withholding tax relief process for Investors. These procedures aim to reduce delays and administrative burdens for investors.
Expected impact and next steps
The Commission estimates that the FASTER initiative could result in savings of around €5.2 billion per year for EU and third-country investors. The proposal is currently being examined by the European Parliament and the Council, with member states expected to transpose the new rules into their national legislation by 2027.
The FASTER initiative represents an important step towards the harmonization and simplification of withholding tax relief procedures in the EU. By promoting cross-border investments and strengthening transparency, the proposal aims to create a more investor-friendly environment while combating tax abuse and evasion in the financial sector.
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