Position paper AFG – directive FASTER – procédures de remboursement de retenues à la source au sein de l’UE

The European Commission recently proposed Directive COM(2023) 324 final, known as FASTER, aimed at establishing a common system for the faster and safer refund of excess withholding taxes within the European Union (EU).
As a contextual reminder, the existing procedures for refunding excess withholding taxes on dividends or interest payments to non-resident investors in listed securities under double taxation treaties are lengthy, costly, and heterogeneous among EU member states. These difficulties discourage cross-border investments within the EU and hinder market competitiveness, despite not aligning with the goal of combating tax fraud.
While the AFG fully supports this initiative to create a unified EU-wide system for refunding excess withholding taxes, several concerns and suggestions are addressed in the present AFG position paper as follows:
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#### AFG Comments:
Inapplicability to Investment Funds:
The proposal’s requirement for an eTRC poses a challenge for investment funds, particularly UCIs that lack a legal entity’s tax identification number. To avoid penalizing investors using these funds, it’s essential to adapt eTRC requirements to the specifics of investment funds, potentially accepting LEIs.
Defining Beneficial Ownership:
The proposal lacks a uniform definition of „beneficial ownership,“ allowing member states to interpret it differently. A consistent definition across all member states is necessary to achieve the proposed harmonization of procedures, especially concerning investment funds, which have been subject to questions regarding their beneficial ownership status.
Broad Definition of Financial Agreement:
The proposal’s definition of a financial agreement is overly broad, potentially covering a wide range of financial transactions beyond tax avoidance schemes. It is crucial to narrow this definition to target only transactions presenting a genuine risk of tax fraud or abuse, rather than burdening intermediaries with extensive reporting.
Responsibility of CFIs:
While CFI registration and reporting are essential for trust and effective implementation of FASTER, the proposal’s heavy responsibility on CFIs may deter them from using the accelerated refund procedures. Limiting their responsibility will help ensure these procedures are adopted.
Timely Issuance of eTRCs:
While the proposal aims for a one-day eTRC issuance period to expedite the refund process, it should restrict member states‘ ability to extend this deadline except in exceptional cases.
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Taken together, the position of the AFG is that while it supports the FASTER directive’s objectives, there is a need for amendments to ensure its effectiveness and fairness particularly regarding investment funds, beneficial ownership, the definition of financial agreements, the responsibilities of CFIs, and the timely issuance of eTRCs. These changes would help create a more equitable and efficient system for refunding excess withholding taxes within the EU. The AFG remains available for further discussions on these matters.