This is one of the elements of the 2020 Capital Markets Union action plan. On Monday 19 June, the European Commission proposed three new measures on cross-border taxation. Both investors and financial intermediaries are affected.
The aim is to make withholding tax procedures more effective and to combat the abusive use made of them, in particular Cum/Ex, which consists of regularly transferring ownership of shares, generally after the payment of dividends.
Creating a common tax residence certificate
The first proposal is to introduce a digital tax residence certificate common to the whole of the European Union (EU). Today, withholding tax procedures vary from country to country, and hundreds of forms exist. The procedures for obtaining refunds in other member states are often long and tedious.
A reporting obligation for financial intermediaries
Certified financial intermediaries will have to declare dividend or interest payments to the relevant tax authorities. Large financial intermediaries in the EU will be required to join the national register of certified financial intermediaries. This register will also be open to third-country financial intermediaries and small EU financial intermediaries on a voluntary basis.
Two new accelerated procedures
Finally, the Commission is proposing the introduction of two new fast-track procedures. The first is “relief at source,” with an applied tax rate determined in accordance with the provisions of the double taxation agreement.
The second procedure, known as “rapid repayment,” provides for the initial payment to be based on the withholding tax rate of the state in which the dividends or interest are paid. The excess is then refunded within 50 days of payment.
Member states will be able to choose either procedure in addition to the existing standard refund procedure, or to combine the two.
Once adopted by the member states, the proposals are expected to come into force on 1 January 2027.
This story was first published in French on Paperjam. It has been translated and edited for Delano.