The European Commission has released on 19 June 2023 a proposal for a Council Directive on Faster and Safer Relief of Excess Withholding Taxes (hereafter “FASTER” proposal). The stated aim of this initiative is to make withholding tax procedures with respect to cross-border securities income more efficient and secure for investors, financial intermediaries and national tax authorities. The new rules would introduce new requirements for financial intermediaries acting as Certified financial intermediaries.

There are broadly three key building blocks to the proposals:

  • A common EU digital certificate of tax residence (eTRC)
  • Two “fast track” procedures to complement existing standard refund procedure
  • A standardised reporting obligation.

Digital tax residence certificate (eTRC)

If the proposal is adopted, Member States would have in principle to issue the eTRC within one working day after the submission of a request and the eTRC would cover at least the whole calendar year in which the request for such certificate is made.

Two “fast track” procedures to complement existing standard reclaim procedure

The proposal at hand introduces a “relief at source” procedure and a “quick refund” system.  Member States will be able to choose which one to use, including a combination of both.

  • Under the “relief at source” procedure, the tax rate applied at the time of payment of dividends or interest is directly based on the applicable rules of the double taxation treaty provisions.
  • Under the “quick refund” procedure, the initial payment is made taking into account the withholding tax rate of the Member State where the dividends or interest is paid, but the refund for any overpaid taxes is granted within 50 days from the date of payment.

The proposal would apply to Member States that provide relief of excess withholding tax on dividends from publicly traded shares. Moreover, Members States may opt to apply these provisions in respect of excess withholding tax on interest from publicly traded bonds.

Standardised reporting obligation for Certified financial intermediaries

The proposal provides that, in order to benefit from the “fast track” procedures, several conditions have to be met.

First, investors would have to engage with financial intermediaries that are certified (hereafter “Certified financial intermediaries” / “Cfi”) and registered as such in relevant Member States’ National Registers. In this respect, it is to be noted that large EU financial intermediaries providing withholding tax agent services would be required to join National Cfi Registers of Member States in which securities’ issuers are located and where any of their clients have invested in. The National registers would also be opened to non-EU and smaller EU financial intermediaries on a voluntary basis.

Certified financial intermediaries would have to obtain from their clients:

  • an authorisation to request relief on the client’s behalf,
  • a declaration / statement that the client is the beneficial owner of the dividend or interest and that the client is not engaged in a related financial arrangement.

In addition, Cfi would have to verify the client’s eligibility to the “fast track” procedures and to put in place procedures accordingly. It includes a verification of the eTRC of his/her client, of the client’s declaration and tax residence against available AML information as well as a verification of the client’s entitlement to a specific reduced WHT rate and, in case of a dividend payment, of the possible existence of any related financial arrangement. 

Finally, Cfi would have to report as soon as possible after the record date (and at the latest within 25 days from the record date) to the competent authority (i.e. in the Member State where its clients’ investment takes place) information regarding notably the recipient and the payor of the dividend or interest payment and regarding the dividend or interest payment.

Data retention and sanctions

Documentation supporting the information reported should be kept for five years. 

It is to be noted that, based on the current proposal, in case of non-compliance, the Cfi could be liable for all or part of the loss of withholding tax revenue incurred by the Member State in relation to a request of “relief at source” or “quick refund” procedure.

Member States should also adopt penalties applicable to infringements of national provisions transposing FASTER that shall be effective, proportionate, and dissuasive.

Next steps

The timeline given is that if the Directive is timely approved, the proposal should come into force on 1 January 2027.

The Commission has launched a public consultation seeking feedback from interested stakeholders on the legislative proposal at hand.

The introduction of more efficient withholding tax procedures on cross-border securities income is a long-standing priority of the ABBL. We will discuss the proposal at hand with members in the coming weeks to define a position and, to the extent required, agree on proposals for amendment.