The Council of the European Union has reached an agreement on new rules for withholding tax procedures, known as the FASTER initiative.

The agreement aims to improve the safety and speed of withholding tax relief processes on cross-border investments, therefore improving the functionality of the Capital Markets Union (CMU).

Currently, many EU member states levy taxes on dividends from equities and interests on bonds paid to investors based in another country.

Those investors also have to pay income tax in their country of residence on the same income.

The Council noted that while treaties between member states aimed to solve the issue of double taxation, in reality the procedures to claim withholding tax relief vary from one member state to another, resulting in relief procedures being “lengthy, costly and cumbersome”.

Furthermore, it stated that these procedures can be vulnerable to large-scale tax fraud.

The new directive will introduce a common EU digital tax residence certificate (ETRC) that tax-paying investors will be able to use to benefit from the fast-track procedures to obtain relief from withholding taxes.

The agreement will enable member states to have two fast-track procedures, complementing the existing standard refund process for withholding taxes: Relief-at-source, where the relevant tax rate is applied at the same time of payments of dividends or interest, and quick refund, where the reimbursement of overpaid withholding tax is granted within a set deadline.

It will also set a standardised reporting obligation for financial intermediaries, aiming to make it easier for national tax authorities to detect potential tax fraud or abuse.

Member states will have to transpose the directive into national legislation by 31 December 2028, but the national rules will have to become applicable from 1 January 2030.

“Aligning our tax relief procedures is essential if we want to improve the functioning of the CMU,” said Belgian Minister of Finance, Vincent Van Peteghem.

“I’m glad we have found an agreement on this important proposal, which will also help to fight tax fraud much more efficiently.

“It will make investing in other countries easier and hopefully encourage retail investors in particular to invest on European financial markets, which will eventually benefit the whole economy.”

PensionsEurope said the directive was a “crucial element” in the CMA agenda as it would reduce investment barriers and costs within the single market, and tackle existing administrative barriers that pension funds are facing.

“PensionsEurope is delighted that the member states responded positively to the challenges related to currently inefficient tax procedures,” commented PensionsEurope secretary general, Matti Leppälä.

“We would like to thank the impressive work carried out by the European Commission, the Spanish and the Belgian presidencies which led to this positive conclusion.

“As major institutional investors, pension funds will benefit from this directive, which will then have to be transposed into national laws. We will closely monitor this transposition phase.”

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