Strasbourg, 28 February 2024
On Wednesday, MEPs in plenary adopted their opinion on new rules to simplify withholding tax procedures in the EU for investors while making them fraud-proof.
The simplifications to be brought about by the rules are expected to save investors around EUR 5 billion per year and, at the same time, provide tax authorities with more clarity to weed out fraudulent practices such as the cum-ex and cum-cum schemes which cost European taxpayers around EUR 141 billion over 20 years. Parliament’s opinion, spearheaded by Herbert Dorfmann (EPP, IT), containing some changes to the Commission proposal, was adopted by 541 votes in favour, 36 against, and 23 abstentions.
Key changes to the proposal
Member States shall take the appropriate measures to require an individual or entity deemed resident in their jurisdiction for tax purposes to inform tax authorities issuing the electronic tax residence certificate (eTRC) about any change that could affect the validity or the content of the eTRC.
Member States shall update their national registers to reflect the status of financial intermediaries no longer holding certification. In cases where the removal as a certified financial intermediary results from a decision by a Member State, the specific reasons for such action shall be clearly indicated in the register.
Member States should take the necessary measures to ensure that certified financial intermediaries requesting relief on behalf of a registered owner verify the risks of residence and citizenship by investment schemes that present a potentially high risk.
Member States shall process a refund request within 25 calendar days unless the Member State has reasonable doubts on the legitimacy of the refund request. A refund request may be rejected if any verification procedure or tax audit is initiated.
The European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) shall regularly monitor the risk for cum-cum and cum-ex schemes in the Union. Member States shall introduce coordinated cooperation and mutual assistance between national competent authorities, tax authorities and other law enforcement bodies to detect and prosecute illegal withholding tax reclaim schemes.
More details of the proposed changes can be found in this summary.
Next steps
Parliament’s changes will now be submitted to the Council which must consider them before it finally adopts the legislation.
Background
The Commission proposed rules to regulate withholding tax procedures at EU level in order to attack the problem of double taxation, which itself hampers the cross-border investments and the Capital Markets Union, and also to prevent large-scale tax abuse schemes such as ‘Cum/Ex’ and ‘Cum/Cum’ schemes. ‘Cum/Ex’ schemes work as fraudulent multiple reclaim schemes when entitled to a single reclaim intended to address the risk of double taxation.
The rules will lay down procedures for the issuance of a digital tax residence certificate by Member States and a fast system to relieve any excess withholding tax that can be withheld by a Member State on dividends from publicly traded shares and, where applicable, interest from publicly traded bonds paid to registered owners who are resident for tax purposes outside that country. Furthermore, a standardised reporting obligation will provide national tax administrations with the necessary tools to check eligibility for the reduced rate and to detect potential abuse.