On August 4th, 2022, the European Commission published its summary report on the public consultation on its proposed EU wide withholding tax system. The report can be seen by clicking here.

The problem this proposed EU wide withholding tax system aims to tackle is the particularly burdensome and costly withholding tax relief procedures for cross border investors in the securities market. The existence of inefficient, burdensome and costly procedures for the recovery of excess tax paid in a cross-border context discourages cross-border investment in the Union. In some cases, the high costs of withholding tax relief drive non-resident taxpayers to forego their right to apply for the tax treaty benefits that they are entitled to, thereby leading to double taxation and as a consequence to less attractive net returns than for domestic investments. The general objectives of the initiative are to ensure the proper functioning of the Capital Markets Union, to facilitate cross-border investment and to prevent tax abuse.

Last year, on 28  September 2021, the Commission had already issued a so called INCEPTION IMPACT ASSESSMENT in which it sets out possible policy options, including legislation, to achieve the before-mentioned objectives. More information about the INCEPTION IMPACT can be found in our news letter of 29 September, 2021.

According to the summary report, 83.9% (1295 of 1544 respondents) of investors have a  preference for a harmonised relief at source system. 42.2% of professional investors (businesses) thought that a harmonised relief at source system should be accompanied with a harmonised refund system. The three most preferred measures to streamline withholding tax refund procedures are the creation of a single web portal for refund claims, standardised and same language forms, and the ability to e-request tax residence certificates along with a digitalized verification system.

Next steps

The European Commission will further analyse the replies to the public consultation. Further contacts with other stakeholders (i.e. custodians, collective investment vehicles, or financial authorities) will need to be held to gain a better understanding of how to regulate crucial aspects like liability, entitlement under double tax treaties, and potential exchange of information between financial and tax authorities. The abovementioned activities will help guide the preparation of the impact assessment and the drafting of the legislative proposal for the withholding tax initiative.