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Withholding tax (WHT) is taken at source in the EU country where investment income is generated, but is often taxed again in the member state where the investor is resident.
This can result in double taxation, and although investors have the right to claim a refund when this occurs, in practice refund procedures are “currently difficult, expensive and time-consuming”, the Commission said.
The overall cost of withholding tax refund procedures has been estimated at €8.4bn a year – a combination of the costs of reclaim procedures, opportunity costs (delayed refunds meaning that the money cannot be used for other purposes), and investors choosing not to pursue refunds because of the complexity involved.
Withholding tax rules can be particularly complex for smaller investors, with some of them not even pursuing possible tax repayments, according to the Commission.
Its guidelines are in the form of a code of conduct intended to result in quick, simplified and standardised procedures for refunding taxes where appropriate.