Paying taxes in the EU is easy

21.06.2023 The European Commission (EC) has proposed new rules to standardize income tax withholding procedures in all EU member states.

These changes are included in the general plan of the EC on reforming business taxation in the XXI century. A significant part of it is the common digital certificate of tax residence of the EU, as well as two new accelerated procedures. These procedures will allow cross-border investors to either claim withholding tax exemption or receive a refund within 50 days from the date of the taxable payment. The EC states that the digital certificate of tax residence will be issued within one business day after the request is submitted. Investors will only need one such certificate to receive multiple refunds on a diversified portfolio.

The EU states that the purpose of such reforms is to accelerate the return of funds to cross-border investors who have been taxed twice on the same payment. Currently, when an EU resident invests in securities in another Member State, payments received as dividends or interest are usually taxed at source in the country of investment. The rate of this withholding tax is often higher than the reduced rate based on the applicable bilateral double taxation avoidance agreement. In order to eliminate double taxation, a non-resident investor must apply for a refund of the tax source excessively withheld by the country. However, these refund procedures are often cumbersome and vary from Member State to Member State.

However, the advantages of the new procedure will be accompanied by stricter regulation. In particular, financial intermediaries will be given a new duty to report the payment of dividends or interest to the relevant tax authorities so that the latter can track the transaction. In addition, all major EU financial intermediaries will have to be included in the national register. This register will also be open to non-EU financial intermediaries and smaller EU financial intermediaries, initially on a voluntary basis.
If the proposal is accepted by the Member States, it should enter into force on January 1, 2027.

Link to source: https://ec.europa.eu/commission/presscorner/detail/en/ip_23_3301