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The European Commission has adopted a recommendation that outlines how EU member states could make it simpler for resident investors to claim withholding tax relief on dividends, interest and other securities income received from other member states.
The recommendation:
- encourages member states to apply at source rather than by refund any withholding tax relief applicable to securities income under double taxation treaties or domestic law;
- encourages member states to apply quick and standardised refund procedures where they cannot provide relief at source;
- encourages member states to accept alternative proofs of investors' entitlement to tax relief besides certificates of residence;
- suggests how member states can involve financial intermediaries in making claims on behalf of investors;
- encourages greater acceptance by member states of electronic rather than paper information;
- suggests that member states could apply a risk-based approach to setting requirements of proof of entitlement to tax reliefs;
- suggests how member states could set up single or joint audits or even external audits to investigate the compliance of financial intermediaries with obligations created in line with the recommendation; and
- encourages greater use of existing channels for exchange of information between member states and the exploration of new channels.
Member states' procedures to verify claims for withholding tax reliefs are often complicated and time-consuming to such a degree that investors forego the reliefs to which they are entitled or are discouraged from investing across borders.
The procedures often do not take into account the present-day, multi-tiered financial environment in which there may be a chain of financial intermediaries, based in several countries, between the issuer of the securities and the investor.
A study by the EC services suggests that the costs related to these present reclaim procedures are estimated to a value of €1.09 billion annually, whereas the amount of foregone tax relief is estimated at €5.47 billion per year.
