Locations
On 19 June 2023, the European Commission (the "EC") published the proposal for the Directive "Faster and Safer Relief of Excess Withholding Taxes" ("FASTER").
Context
Investors may face double taxation of dividends/interests on cross-border transactions under the form of a withholding tax ("WHT") in the issuer's country followed by additional taxes in the investor's country. Although WHT relief/refund procedures may be available, they vary from one Member State ("MS") to another, making the process costly and time-consuming for non-resident investors. FASTER aims to simplify and speed them up for listed shares and, where applicable, interests from listed bonds in the European Union ("EU"). Below we discuss the key features of FASTER.
Common EU digital tax residency certificate
FASTER introduces a common EU digital tax residency certificate ("DTRC") (certificat de résidence fiscale numérique de l'UE / digitaal fiscaal verblijfscertificaat van de EU) which contains several pieces of information (e.g. identification and tax residency of the taxpayer, tax authorities issuing the DTRC, etc).
National register of certified financial intermediaries
MSs must set up a national register of "certified financial intermediaries" ("CFIs"). Depending on the category of the financial intermediary, their registration is either mandatory or optional.
Communication of information and CFI's due diligence
Registered CFIs must communicate a common set of specific information on the transaction to the "source" MS (except if the total dividend paid on the shareholding does not exceed €1,000).
In addition, investors and CFIs must comply with certain obligations to benefit from FASTER's "fast-track" WHT procedures:
1. first, investors must provide CFIs with a statement (confirming their quality of beneficial owners and the absence of any financial arrangement on the underlying securities); and
2. second, CFI's must verify certain information relating to the investors (e.g. their DTRC, etc).
Fast-track WHT procedures
FASTER introduces two fast-track WHT procedures:
1. a "relief at source" procedure: payments of dividends/interests are subject to a WHT rate directly based on the applicable rules (double taxation treaty and/or national provisions); and
2. a "quick refund" system: payments of dividends/interests are subject to the "source" MS's WHT rate but are then followed by a refund within 50 days from the date of payment.
MSs may choose which procedure to implement or include a combination of both.
Entry into force
If FASTER is adopted, MSs will have to transpose the Directive by 31 December 2026 to apply it from 1 January 2027.
A good starting point
The framework proposed by the EC seems a good starting point for resolving difficulties associated with the WHT relief/refund procedures, although certain concepts still need to be clarified (e.g. the notion of "beneficial owners"). Ultimately, whether FASTER will be adopted or not should depend on the EC's ability to adapt it to all MSs' needs.