2023/0187/CNS: Proposal for a COUNCIL DIRECTIVE on Faster and Safer Relief of Excess Withholding Taxes

On June 19, 2023, the European Commission published in the Official Journal (OJ) of the EU a proposal for a Directive on faster and safer relief of excess withholding tax, known as the FASTER Directive. The aim of this directive is to establish a common EU procedure for the relief of excess withholding tax on cross-border investments in order to make corresponding procedures more efficient AND reduce tax fraud in connection with the payment of dividends on shares or interest on bonds (e.g. via cum-cum and cum-ex arrangements).
The proposal envisages the creation of a common EU digital tax residence certificate (eTRC) which would – so to speak – confirm the tax residency of EU investors. The eTRC would be provided by the member states and would contain information such as the name, date and place of birth (if applicable), the European Unique Identifier number (EUID) in case of legal entities, the tax identification number of firms and individuals seeking relief from withholding tax. It will be a prerequisite to own such certificate in order to be refunded any withholding tax.
The directive further proposes the establishment of national registers for „certified financial intermediaries“. These financial intermediaries would be required to report on any financial transaction in relation to the distribution of dividends or interest income exceeding EUR 1,000. The report would entail information as to the (legal) person from whom the intermediary is receiving the dividend / interest and to whom the intermediary is paying the dividend / interest. These reports will enable tax administration authorities to „reconstruct the financial chain of the transaction from the investor to the securities’ issuer“.
„Certified financial intermediaries“ would also be able to request a refund on withholding tax on behalf of the security owner (beneficial owner) provided that the owner has a valid eTRC and is eligible for a reduced tax rate in accordance with applicable double taxation agreements. Corresponding due diligence requirements would be imposed on intermediaries.
The Directive further proposes that member States may introduce either a relief at source system or a rapid refund system, or both. Relief at source would withhold the withholding tax applicable to the owner of the security at the time of the dividend or interest payment, while rapid refund would provide for reimbursement of any overpaid withholding tax within a specified period not exceeding 25 days. NEITHER OF THE TWO shall be applicable to transactions involving securities that were purchased within 48 hours from the ex-dividend date.
The proposal will now be discussed by the Council of EU member states and requires unanimous approval. If adopted, member states will have until December 31, 2026 to transpose the directive into national law.