On 28 September, 2021 the European Commission released its roadmap to a common EU-wide system for withholding tax on dividend or interest payments.

The problem this initiative aims to tackle is the particularly burdensome withholding tax relief procedures for cross border investors in the securities market. 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.

As a first publication on this new initiative, the Commission has issued a so called INCEPTION IMPACT ASSESSMENT in which it sets out possible policy options, including legislation, to achieve the before-mentioned objectives. A range of policy options (or a combination) might include the following:

Option 1: Improving withholding tax refund procedures to make them more efficient: This option entails the implementation of several measures, the objective of which is to simplify and streamline withholding tax refund procedures by making them quicker and more transparent. These measures are not limited by but could include: the establishment of common EU standardized forms and procedures for withholding tax refund claims irrespective of the Member States concerned and the obligation to digitalize current paper based relief processes.

Option 2: Establishment of a fully-fledged common EU relief at source system: This option entails the implementation of a standardized EU-wide system for withholding tax relief at source whereby the correct withholding tax rate, as provided in the DTC is applied at the time of payment by the issuer of the security, to the non-resident investor thereby not incurring double taxation.

Option 3: Enhancing the existing administrative cooperation framework to verify entitlement to double tax convention benefits: This option envisages a reporting and subsequent mandatory exchange of beneficial owner-related information on an automated basis, to reassure both the residence and source country that the correct level of taxation has been applied to the non-resident investor.

The possibility to provide feedback closes 26 October, 2021. Next year, an official public consultation will be held. The aim of the request for feedback and public consultation is to gather views from a broad range of stakeholders on the potential policy options to be covered by the initiative and the scope and technicalities attached to each alternative.

More detailed information on the INCEPTION IMPACT ASSESSMENT can be found by clicking here.