Withholding taxes – New EU system to avoid double taxation

From Tax Advisers Europe: The European Commission has now published a Roadmap concerning a new EU system on withholding taxes, designed to avoid double taxation. The publication precedes a public consultation questionnaire which will also be launched in Q4 2021 on the Have Your Say website.

The Commission Roadmap states that despite prior actions by the Commission “tax barriers to cross-border investment and the risk of tax abuse persist within the European Union. One of these remaining barriers is the problem of inefficient withholding tax relief procedures. According to the most recent publicly available data from 2016 costs related to withholding tax refund procedures, foregone tax relief and opportunity costs are estimated to a value of EUR 8.4 billion annually. The Action Plan for fair and simple taxation supporting the recovery strategy proposes to introduce a common, standardised EU-wide system for withholding tax relief at source coupled with a new exchange of information and cooperation mechanism between administrations”. 

The policy options that are currently being considered in relation to the intended proposal for a new EU system on withholding taxes includes:

Option 1: Improving withholding tax refund procedures to make them more efficient: This option entails the implementation of several measures, the objective of which is to simplify and streamline withholding tax refund procedures by making them quicker and more transparent.. These measures are not limited by but could include: the establishment of common EU standardised forms and procedures for withholding tax refund claims irrespective of the Member States concerned and the obligation to digitalise current paper based relief processes.
Option 2: Establishment of a fully-fledged common EU relief at source system: This option entails the implementation of a standardized EU-wide system for withholding tax relief at source whereby the correct withholding tax rate, as provided in the DTC is applied at the time of payment by the issuer of the security, to the non-resident investor thereby not incurring double taxation.
Option 3: Enhancing the existing administrative cooperation framework to verify entitlement to double tax convention benefits: This option envisages a reporting and subsequent mandatory exchange of beneficial owner-related information on an automated basis, to reassure both the residence and source country that the correct level of taxation has been applied to the non-resident investor.

The Commission will launch a consultation in questionnaire in the coming months concerning the above policy options, via the Have Your Say website. Input will be invited over a 12 week period via the online portal.

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