On the draft Council directive on Faster and Safer Relief of Excess Withholding Taxes

On 28 July 2023, the Council consulted the Parliament on a proposal for a Council Directive on Faster and Safer Relief of Excess Withholding Taxes.

The Parliament delivered its opinion on 28 February 2024.

On 14 May 2024, the Council reached a general approach on the draft Directive.

However, given fundamental differences between the 19 June 2023 text of the Commission on which the Parliament was initially consulted and the text unanimously agreed in Council, the latter decided to re-consult the Parliament.

According to the agreed text by the Council, the directive will introduce a common EU digital tax residence certificate (eTRC) and two fast-track procedures complementing the existing standard refund procedure for withholding taxes, as proposed by the Commission. However, the deadlines for the issuance of the eTRC and the quick refund system have been prolonged, making the tax relief ‘less fast’ than originally foreseen by the Commission’s proposal.

A key change is the exemption provided to Member States who already have a comprehensive relief-at-source system in place and who have a relatively small financial market, i.e. when their market capitalisation ratio is below a threshold of 1,5% (as reported by ESMA).

The Directive further introduces a reporting obligation for financial intermediaries, who will have to register in national registers established pursuant to this Directive in order to be able to request the fast-track procedures. The Council agreed to create a European Certified Financial Intermediary Portal to simplify the procedure.

Finally, the Council agreement extends the original deadline for the entry into force of 1 January 2027, as foreseen by the Commission’s proposal, to 1 January 2030.

In its letter requesting re-consultation, the Council is asking the Parliament to deliver its opinion as soon as possible and by 31 January 2024 at the latest. This is because Member States want to start working, together with tax authorities, the Commission and business stakeholders, on implementing acts. These implementing acts should, for instance, lay down standard computerised forms, including the linguistic arrangements, and technical protocols, including security standards, for the EU-wide eTRC.

The text agreed in the Council, although not fully in line with the EP opinion, still introduces a faster tax relief process compared to the current situation. The introduction of an electronic tax residency certificate (eTRC) was supported by the Parliament, Council, and the Commission.

Overall, the deal struck by the Council is not only a step in the right direction towards facilitating cross-border investments and completing the Capital Markets Union (CMU). It also introduces some important measures to detect potential tax fraud or abuse in relation with withholding taxes.

However, it is regrettable that the Council decided to postpone the entry into force until 2030, given the current importance of the completion of the CMU, as recently highlighted by the reports by Mario Draghi and Enrico Letta. In view of legal certainty and citizens’ interest to have a faster withholding tax refunding process, the Council should adopt quickly the COM(2023)0324 proposal on Faster and Safer Relief of Excess Withholding Taxes.

Taking into account the time needed to transpose the Directive in Member States’ legislation and the political will to speed up its adoption, your rapporteur proposes that Parliament approves the proposal without amendments pursuant to a simplified procedure without amendments (rule 52).

The rapporteur declares under his exclusive responsibility that he did not receive input from any entity or person to be mentioned in this Annex pursuant to Article 8 of Annex I to the Rules of Procedure.