On the Horizon: Changes in EU Tax Law – FASTER Directive

AGN EMEA Tax Committee News

Do you know the key components and implementation timeline for the Faster and Safer Relief of Excess Withholding Taxes (FASTER) Directive?

On May 14, 2024, EU Finance Ministers reached an agreement on the FASTER Directive, which aims to partially harmonise the procedure for collecting and refunding withholding tax on dividends and interest. The aim of the Directive is to speed up and simplify these procedures at EU level.

The new regulations will affect primarily cross-border investors and financial intermediaries – entities maintaining securities accounts for investors on the regulated market. However, some changes, in particular those regarding obtaining tax residence certificates, may apply to all taxpayers.

In the is article, learn about the FASTER Directive:

1. CURRENT PROBLEMS
2. COMMON CERTIFICATE OF TAX RESIDENCE
3. EXPEDITED PROCEDURES
4. FINANCIAL INTERMEDIARIES
5. TIME FRAME
6. USEFUL LINKS

1. CURRENT PROBLEMS

Although agreements between Member States regulate the issue of double taxation, in reality the procedures for applying for relief or refund of withholding tax vary significantly from one country to another, which makes the entire process long and expensive.

Moreover, the application of withholding tax preferences generally requires documenting the taxpayer’s registered office with a tax residence certificate. In practice, meeting this requirement may involve numerous problems resulting from inconsistency of procedures in individual countries, as well as from the lack of a uniform template for this document. These differences constitute a significant barrier to conducting cross-border activities.

2. COMMON CERTIFICATE OF TAX RESIDENCE

The draft Directive addresses these problems, according to which a common EU digital tax residence certificate will be in force in all Member States, with uniform content and a uniform format.

This is an important change because it is intended to apply to all taxpayers. According to the draft Directive, Member States will be obliged to ensure an automated process of issuing residence certificates to all their tax residents (individuals and other entities recognised as residents in a given jurisdiction). The certificate is to be issued by the Member State of residence within 14 days of submitting the application. The digital certificate will be recognised throughout the European Union.

3. EXPEDITED PROCEDURES

The FASTER Directive will enable Member States to apply two models of accelerated procedures for applying withholding tax relief on the payment of dividends or interest:

• Withholding tax relief procedure – which involves calculating the appropriate amount of tax at the time of payment of dividend or interest by the entity collecting withholding tax;
  
• Quick return system – if a higher rate is charged, the excess is to be returned within a specified period (up to 60 days).

Finance Ministers agreed that countries will be able to maintain their procedures in certain cases. This applies, among others, to Member States that have introduced a comprehensive system of withholding relief, if their market capitalisation ratio is maintained at the level specified in the Directive.

The draft text of the Directive also introduces additional circumstances in which Member States may fully or partially derogate from accelerated procedures in order to carry out further checks with a view to preventing fraud.

The exceptions provided for in the Directive are intended to respond to the objections of some countries, but this will hamper the harmonisation of procedures assumed by the European Commission.

4. FINANCIAL INTERMEDIARIES

The Directive also provides for the creation of national registers of certified financial intermediaries and a central register at EU level. The proposed regulations specify the conditions for registration and the procedure for deleting these entities from the register.

Certain reporting obligations will be imposed on certified financial intermediaries. The information provided to the tax administration is intended to enable tracking of a given transaction and determining the identity of the final investor and his potential entitlement to apply a reduced withholding tax rate.

5. TIME FRAME

The project will still be processed by the European Parliament and the Economic and Financial Affairs Council before it can be announced in the Official Journal of the EU.

Member States are to adapt their national law to the provisions of the Directive by the end of 2028. The new provisions are to apply from January 1, 2030.

The FASTER Directive is a welcome step forward in enabling taxpayers to effectively obtain the exemptions and refunds they are entitled to. Harmonising withholding tax procedures is key to improving the functioning of EU capital markets.

The proposal to standardise the content of residence certificates and the procedures for issuing them should be assessed positively. The planned changes should eliminate existing problems resulting from discrepancies in national regulations, and thus contribute to faster and more effective obtaining certificates.

6. USEFUL LINKS

DRAFT Council Directive on Faster and Safer Relief of Excess

Brought to you by the AGN Tax Committee

If you have any questions in relation to this article, please get in touch with Tomasz Paszkowski.

Tomasz Paszkowski
Partner & Tax Advisor
JRD

Email: tomasz.paszkowski@jrd.pl
Phone: +48 22 654 02 14
Connect on LinkedIn