Opinion Statement FC 7/2023 on the EU Commission FASTER Withholding Tax Proposal

CFE Tax Advisers Europe has published an Opinion Statement concerning the EU Commission’s withholding tax proposal to introduce legislation on a new EU system for the avoidance of double taxation and prevention of tax abuse: Faster and Safer Relief of Excess Withholding Taxes.

In June 2022, CFE Tax Advisers Europe submitted representations to the European Commission’s consultation concerning its public consultation on the planned proposal. As CFE set out in its initial representations, CFE is supportive of the initiative to introduce an EU-wide system for relief at source of withholding tax on dividend, interest, royalty payments and service fees, and for exchange of information and cooperation between tax authorities under the system.

We are not seeking in this Statement to repeat all those points which we continue to endorse from our previous statement. However, we believe there is merit in making some observations concerning issues identified with the current legislative proposal.

Firstly, CFE believes that a tax residence certificate should be issued in a harmonized format within the EU, both in the local language and in English. Furthermore, it should certify the residence of the taxpayer under the applicable domestic law and not for the purposes of particular tax treaties.

Secondly, CFE is of the view that the scope of the currently proposed directive is much too restricted, given the extremely limited application to only publicly traded bonds and shares which is much narrower than was originally envisaged at the time of the EU Commission’s consultation process in 2022. CFE is disappointed that the proposed directive is limited in scope and does not address further issues which allow for relief of double taxation not addressed by the mechanism.  CFE is of the view that relief at source via a digital certificate mechanism should be applicable to all types of dividend, interest and royalty payments and to service fees.

Thirdly, while obviously recognizing that Member States should effectively fight tax fraud and abuse, CFE believes that the right that they have in this respect should be exercised “after-the-facts” and not before.  For that reason, CFE Tax Advisers Europe is of the view that a taxpayer should not have to provide information on the purposes of the certificate (this refers to Article 4(2)(g) of the Proposal) and that the financial intermediary should not be required to verify that information including undertaking a “risk assessment that takes into account the credit risk and fraud risk” as is notably provided by Article 10(1)(b) of the Proposal.  More generally, the role of financial intermediaries should be revisited as set forth in section 4 of our Statement.

Finally, CFE observes that the currently proposed directive will not enter into force until January 2027, which is a relatively long transition period as compared with other direct tax proposals, for what would seemingly be a less complicated implementation.

We invite you to read our Opinion Statement and remain available for any queries you may have.