The European Commission has proposed new rules which, it says, will make withholding tax procedures in the EU “more efficient and secure” for investors, banks and EU Member State tax administrations.
The initiative and the Commission’s 2020 Action Plan on the Capital Markets Union will, says the EC, “promote fairer taxation, fight tax fraud, and support cross-border investment throughout the EU.”
The term “withholding tax” refers, for example, to the situation where an investor resident in one EU Member State is liable to pay tax on the interest or dividends earned in another Member State.
This, says the EC, is often the case for cross-border investors. In such a scenario, in order to avoid double taxation, many EU Member States have signed double taxation treaties, which avoid the same individual or company being taxed twice.
These treaties allow a cross-border investor to submit a refund claim for any excess tax paid in another Member State.
The problem, according to the commission, is that these refund procedures are often lengthy, costly and cumbersome, causing frustration for investors and discouraging cross-border investment within and into the EU.
A commission source said, “Currently, the withholding tax procedures applied in each Member State are very different.
“Investors have to deal with more than 450 different forms across the EU, most of which are only available in national languages.
“The Cum/Ex and Cum/Cum scandals have also shown how refund procedures can be abused: the tax losses from these practices have been estimated at €150 billion for the years 2000-2020.”