As published on: ec.europa.eu, Monday 19 June, 2023.
The European Commission has today proposed new rules to make withholding tax procedures in the EU more efficient and secure for investors, financial intermediaries (e.g. banks) and Member State tax administrations. This initiative – a key element of the Communication on Business Taxation for the 21st Century, and the Commission's 2020 Action Plan on the Capital Markets Union – will promote fairer taxation, fight tax fraud, and support cross-border investment throughout the EU.
The term “withholding tax” refers, for example, to the situation where an investor resident in one EU Member State is liable to pay tax on the interest or dividends earned in another Member State. This is often the case for cross-border investors. In such a scenario, in order to avoid double taxation, many EU Member States have signed double taxation treaties, which avoid the same individual or company being taxed twice. These treaties allow a cross-border investor to submit a refund claim for any excess tax paid in another Member State.
The problem is that these refund procedures are often lengthy, costly and cumbersome, causing frustration for investors and discouraging cross-border investment within and into the EU. Currently, the withholding tax procedures applied in each Member State are very different. Investors have to deal with more than 450 different forms across the EU, most of which are only available in national languages. The Cum/Ex and Cum/Cum scandals have also shown how refund procedures can be abused: the tax losses from these practices have been estimated at €150 billion for the years 2000-2020.
Key actions proposed today will make life easier for investors, financial intermediaries and national tax authorities:
These standardised procedures are estimated to save investors around €5.17 billion per year.
Once adopted by Member States, the proposal should come into force on 1 January 2027.
Today's proposal is just one of the Commission's initiatives aimed at simplifying procedures for businesses and fighting abusive tax practices. In December 2022, Finance Ministers adopted the Commission proposal a for Council Directive on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the EU. Moreover, in May 2023, a political agreement was reached on new tax transparency rules for all service providers facilitating crypto-assets transactions for customers residing in the EU. Today's proposal is also a key element of the Commission's Action Plan on the Capital Markets Union 2020.