European Union: Council Adopts New Withholding Tax Procedures via FASTER Directive

| Mihály Varga (right), the Hungarian Minister for Finance, commented on the directive’s importance in deepening the capital markets union and reducing administrative burdens. | Image credits: by ITU Pictures

The Council of the European Union has officially adopted the FASTER directive, introducing streamlined and secure procedures for obtaining double taxation relief. This move aims to enhance cross-border investment within the EU and strengthen the fight against tax fraud.

ADDRESSING DOUBLE TAXATION CHALLENGES:

When it comes to cross-border investments, many member states impose taxes on dividends (from equities and shares) and interest (from bonds) paid to non-resident investors. Simultaneously, those investors are required to pay income tax on the same earnings in their country of residence.

Although tax treaties between member states are intended to alleviate double taxation, claiming withholding tax relief remains inconsistent, time-consuming, and costly due to varying national procedures. These inefficiencies also create opportunities for large-scale tax fraud.

The FASTER directive aims to streamline these processes, making tax relief faster, simpler, and more secure.

KEY POINTS OF THE FASTER DIRECTIVE:

• Simplified Withholding Tax Procedures:

• Reduces administrative burdens for cross-border investors, national tax authorities, and financial intermediaries (banks and investment platforms).

• Ensures investors do not pay double taxes on dividends and interest from investments in shares and bonds.

• Introduction of a Digital Tax Residence Certificate (eTRC):

• A common EU digital certificate to facilitate withholding tax relief.

• Automated issuance by member states for individuals or entities considered tax residents.

• Fast-Track Procedures for Tax Relief:

• Two options to speed up withholding tax relief:

• Relief-at-Source: Correct tax rate applied at the time of payment.

• Quick Refund: Overpaid taxes reimbursed within a specified timeframe.

• Mandatory for publicly traded shares.

• Flexibility for Member States:

• Countries can maintain existing systems if they meet specific market capitalisation criteria.

• Provisions to exclude certain requests from fast-track procedures to prevent fraud.

• Inclusion of Indirect Investments:

• Ensures collective investment undertakings and their investors benefit from streamlined procedures.

• Standardised Reporting for Financial Intermediaries:

• Banks and investment platforms must report relevant transaction details to tax authorities.

• A European Certified Financial Intermediary Portal will facilitate registration and access to national registers.

• Penalties for non-compliance with reporting obligations.

IMPLEMENTATION TIMELINE:

• Adoption: Approved by the Council of the European Union.

• Deadline: Member states must implement the directive by December 31, 2028.

• Application: New rules take effect from January 1, 2030.

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