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EU. Withholding tax refund for companies is to be faster. New Faster directive

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Work is underway on procedures enabling faster refund of overpaid withholding tax. Two solutions have appeared on the EU table: withholding relief and the quick return procedure. Finance ministers agreed to this solution, but also proposed exceptions.

EU finance ministers agreed on the FASTER directive, which is intended to regulate the issue of the so-called withholding tax. Entities investing in another member state will be able to Speed ​​up the refund of overpaid tax by using an electronic tax residence certificate.

This concerns payments from investments made by a tax resident of one country in another Member State, such as: dividends or interest, are subject to withholding tax, i.e. in the country of investment and tax in the country of residence. To avoid double taxationthe investor must apply for refund of excess tax collected by the source country. Procedures vary between member states, and applications often have to be submitted in paper form.

Application for a withholding tax refund. New forms

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European Commission (EC) proposed two harmonized relief systems, i.e. relief at the source and quick return procedure. The withholding tax system means that the appropriate tax rate is applied when dividends or interest are paid. In turn, the “quick refund” procedure means that the refund of overpaid withholding tax will be made within a set period.

Member States will be able to decide whether they want to introduce both procedures or just one.

Exceptions

Finance ministers agreed that countries will be able to maintain their procedures where their regime applies to excess withholding tax on dividends paid on publicly traded shares issued by a resident in their jurisdiction and their market capitalization ratio is below the 1.5 percent threshold. Countries that provide an exemption from excess withholding tax on interest paid on publicly traded bonds will also be able to benefit from the exception.

The exceptions proposed by the ECOFIN Council of the European Union for Economic and Financial Affairs, composed of the ministers of finance and economy of the member states, are intended to respond to the reservations of some countries, but this will make it difficult to harmonize procedures as planned by the European Commission.

When to introduce new forms of withholding tax refund

The Council of the European Union will have to consult the changes with the European Parliament (it has an advisory role in tax matters). Then ministers will be able to formally approve the directive. Member countries will have time to implement it until the end of 2028.

The European Commission, which proposed a solution to this problem in the FASTER directive, estimated that the costs associated with the procedures tax refund at the source, lost tax breaks and opportunity costs amount to EUR 8.4 billion per year.

Main photo source: Shutterstock



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