26 October 2021

Insurance Europe: Insurers call on EC to develop an EU-wide withholding tax system that is simple, fast and digital friendly

Provisions around withholding tax procedures for cross-border portfolio investors or shareholders in the EU often pose a challenge to insurers regarding cross-border investment, due to their complexity and related costs

Insurance Europe has responded to a consultation conducted by the European Commission on its proposed roadmap for the introduction of a common EU-wide system for withholding tax on dividend or interest payments.

It is therefore important for the Commission to improve their efficiency and effectiveness, without creating an excessive administrative burden to monitor and administer the withholding taxes paid.

The following measures should be considered for a future reform of the system:

• Acceleration, simplification and digitalisation of the relief procedure — It should be possible to submit applications for tax relief digitally to a central point of contact in the member state of the investor or shareholder respectively. Procedures could be significantly accelerated by imposing maximum processing periods on the authorities of source states. Procedures and forms, such as residence certificates, should be digitalised and standardised within the EU. 
• Expansion of relief at source — A relief at source is preferable over the refund of withholding tax, as a system of refund procedure is likely to be more cumbersome than a relief at source. The introduction of the TRACE procedure for portfolio investments throughout the EU would be helpful.
• Strengthening the EU principle of the free movement of capital — There should be a common EU wide withholding tax reduction for certain investment funds, as this would improve the level-playing field for cross-border investments. By initiating infringement proceedings, the Commission could ensure that member states design their withholding tax schemes in line with EU-law and therefore strengthen the EU-principle of free movement of capital.
• Withholding tax relief in relation to third countries — Withholding tax relief measures should be implemented for third country cases. This could be coordinated by the OECD or the Inclusive Framework. 
• Clarifications in the Parent-Subsidiary Directive and the Interest and Licensing Directive — The scope of the proposed reform should be widened in order to include intra-group payments. Furthermore, the Parent-Subsidiary Directive should be amended to clarify that the interposition of an intermediary company that is treated as tax transparent in the member state of the parent company does not exclude the parent company from the benefits granted by the Directive.  Likewise, interest payments and license fees should fall under the Interest and Royalties Directive, regardless of an interposed tax transparent entity.

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