21 October 2009

Securities income: Commission recommends simplified procedures for claiming cross-border withholding tax relief

Designed not to hinder the functioning of the Single Market, the recommendation suggests measures to eliminate tax barriers facing financial institutions in their securities investment activities, while protecting tax revenues against errors or fraud.

The European Commission has adopted a recommendation that outlines how EU Member States might make it easier for investors resident in EU Member States to claim withholding tax relief on dividends, interest and other securities income received from other Member States. The recommendation also suggests measures to eliminate the tax barriers facing financial institutions in their securities investment activities, while at the same time protecting tax revenues against errors or fraud. The recommendation is designed to provide guidance to Member States on how to ensure that procedures to verify entitlement to tax relief do not hinder the functioning of the Single Market.

 

Internal Market and Services Commissioner McCreevy said: "If we are serious about promoting cross-border investments in securities in the Internal Market, EU Member States will have to simplify their withholding tax relief procedures, so that foreign investors receive any tax refunds to which they are entitled more quickly and so that tax rules do not hinder financial institutions from getting involved in managing such cross-border investments."

The recommendation:

·                     encourages Member States to apply at source rather than by refund for 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, for example, because the investor has not provided all necessary information, and lists possible elements of such refund procedures;

·                     encourages Member States to accept alternative proof 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 and, in particular, how the procedures might operate where there is a chain of financial intermediaries, in different Member States, between the issuer of the securities and a beneficiary;

·                     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 might 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;

·                     suggests follow-up discussions with Member States on the implementation of the recommendation.

·                     encourages greater use of existing channels for exchange of information between Member States and the exploration of new channels.

 

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