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On 14 May 2024, the Council of the European Union made significant strides in modernizing withholding tax procedures with the approval of the directive on Faster and Safer Relief of Excess Withholding Taxes (FASTER). This comes less than a year after the European Commission introduced the proposal on 19 June 2023.

Currently, discrepancies in withholding tax relief procedures across member states create inefficiencies and high expenses for non-resident investors seeking tax relief. FASTER aims to mitigate the risk of revenue losses to member states due to potential tax fraud and abuse, such as schemes involving dividend arbitrage or multiple refund claims for the same payment. These challenges arise from the lack of precise information available to tax authorities and the limited transparency within the financial chain.

To address these issues, FASTER establishes regulations for issuing digital tax residence certificates by member states. It also outlines procedures to mitigate any excess withholding tax imposed by a member state on dividends from publicly traded shares and, where applicable, interest from publicly traded bonds. These provisions primarily benefit registered owners who are tax residents outside the respective member state.

Key Points:

Digital Tax Residence Certificates (eTRCs): One of the core elements of FASTER is the introduction of digital tax residence certificates. These eTRCs will serve as automated proof of tax residency, issued by member states’ tax authorities, providing essential information for facilitating cross-border investment and preventing tax fraud and abuse.

Centralised portal: National registries for certified financial intermediaries will have an EU-centralised portal which will serve as the main reference point for financial intermediary registration requests and will offer transparency by disclosing certified intermediaries in each Member State. Taxpayers investing in the EU through certified financial intermediaries listed on this portal will benefit from fast-track withholding tax procedures and avoid double taxation on dividends or interest payments.

Fast-Track Procedures: FASTER proposes the implementation of two fast-track withholding tax refund procedures: “relief at source” and “quick refund” systems. These procedures offer expedited relief processes, enabling investors to reclaim overpaid taxes promptly and efficiently.

Implementation and Next Steps:

Following the Council’s agreement, the directive will undergo further legislative procedures at the EU level. Member states will then be tasked with transposing the directive into national legislation by December 31, 2028, with the national rules coming into force from January 1, 2030.

Markita Falzon

Tax Leader

Luke Aquilina

Tax & Transfer Pricing Senior Team Leader

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