Changes from report parliamentary committee draft to plenary report

DRAFT EUROPEAN PARLIAMENT LEGISLATIVE RESOLUTION

Changedon the draftproposal for a Council directive on Faster and Safer Relief of Excess Withholding Taxes

Changed(09925/2024(COM(2023)0324 – C100002/2024C90204/2023 – 2023/0187(CNS))

Changed(Special legislative procedure – renewed consultation)

The European Parliament,

Removed– having regard to the Council draft (09925/2024),

– having regard to the Commission proposal to the Council (COM(2023)0324),

Removed– having regard to its position of 28 February 2024,

Added– having regard to Article 115 of the Treaty on the Functioning of the European Union, pursuant to which the Council consulted Parliament (C90204/2023),

Removed– having regard to Article 115 of the Treaty on the Functioning of the European Union , pursuant to which the Council consulted Parliament (C100002/2024),

Added– having regard to Rule 82 of its Rules of Procedure,

Changed– having regard to Rulethe 84report andof 86the ofCommittee itson RulesEconomic ofand Procedure,Monetary Affairs (A9-0007/2024),

Change 1

Removed– having regard to the report of the Committee on Economic and Monetary Affairs (A100000/2024),

Added1. Approves the Commission proposal as amended;

Removed1. Approves the Council draft;

Added2. Calls on the Commission to alter its proposal accordingly, in accordance with Article 293(2) of the Treaty on the Functioning of the European Union;

3. Calls on the Council to notify Parliament if it intends to depart from the text approved by Parliament;

Change 2

Changed3.4. Asks the Council to consult Parliament again if it intends to substantially amend the text approved byCommission Parliament;proposal;

5. Instructs its President to forward its position to the Council, the Commission and the national parliaments.

Change 3

AddedRecital 1: (1) Ensuring fair taxation in the internal market and the good functioning of the Capital Markets Union (CMU) are political priorities for the European Union (EU). In this context, removing obstacles to cross-border investment, while combating tax fraud and abuse is critical. Such obstacles exist, for example, through inefficient and disproportionately burdensome procedures to relieve excess taxes withheld at source on dividend or interest income paid on shares or bonds traded publicly to non-resident investors. Such obstacles pose a particular challenge for retail investors. In addition, the status quo has proven inadequate in preventing recurring risks of tax fraud, evasion and avoidance, as shown by the recent Cum/Ex and Cum/Cum scandals. This proposal seeks to make EU withholding tax procedures more efficient, while strengthening them against the risk of tax fraud and abuse. It draws on relevant previous actions at EU and international level, such as the 2009 Commission Recommendation on the simplification of withholding tax procedures and the OECD’s Treaty Relief and Compliance Enhancement (TRACE) initiative28 .

AddedRecital 1 a (new): (1a) The cum-ex and cum-cum schemes both involve reclaims of dividend withholding tax to which the beneficiaries were not entitled and are estimated to have imposed a total cost to taxpayers of about EUR 55 billion1a between 2001 and 2012 in the 11 Member States concerned; revelations in 2021 concerning those practices estimate that they have cost 10 governments, including those of some Member States, a total of EUR 141 billion1b; the cum-ex and cum-cum schemes have been ruled illegal and should be prosecuted according to national law. / 1a https://www.dw.com/en/cum-ex-tax-scandal-cost-european-treasuries-55-billion/a-45935370 / 1b https://taxation-customs.ec.europa.eu/system/files/2023-06/SWD_2023_216_1_EN_impact_assessment_part1_v2.pdf

AddedRecital 2: (2) In order to strengthen Member States’ ability to prevent and fight against potential fraud or abuse, which is currently hampered by fragmentation and a general lack of reliable and timely information on investors, it is therefore necessary to put in place a common framework for the relief of excess withholding taxes on cross-border investments in securities that is resilient to a risk of tax fraud or abuse. This framework should lead to convergence among the various relief procedures applied in the EU while ensuring transparency and certainty on investors’ identity for securities’ issuers, withholding tax agents, financial intermediaries and Member States, as the case may be. To this effect, the framework should rely on automated procedures, such as the digitalisation of the certificate of tax residence (in terms of procedure and form), which is a pre-requisite for investors to have access to any relief or refund procedures. Such a framework should also be flexible enough to duly take into account the various systems applicable in different Member States while ensuring greater convergence and providing appropriate anti-abuse tools to mitigate risks of tax fraud, evasion and avoidance. For the success of this Directive, it is necessary that Member States equip the tax administrations with tools to deal with refund/relief at source procedures in a secure and timely manner and increase their efforts in providing digitalised, automated and better-coordinated key features. For…

AddedRecital 4: (4) To ensure that all EU taxpayers have access to a common, appropriate and effective proof of their residence for tax purposes, Member States should use automated procedures for the issuance of tax residence certificates in the same recognisable and acceptable digital form and with the same content. To allow for greater efficiency, the certificate should be valid at least for the whole year during which it has been issued and recognised by other Member States for that period. The eTRC should also contain a reference to applicable double taxation agreements. Member States can rescind an eTRC issued where the tax administration has proof to the contrary of the tax residence for that year. In order to allow for an efficient identification of EU companies, the certificate should include information on the European Unique Identifier (EUID).

AddedRecital 4 a (new): (4a) To ensure the effectiveness of the tax consequences of entities being determined to be shell entities, as provided for in the Commission proposal for a Council directive laying down rules to prevent the misuse of shell entities for tax purposes and amending Directive 2011/16/EU1a (UNSHELL Directive), it is necessary to align the procedures for imposing tax consequences in the UNSHELL Directive and the procedures for issuing an electronic tax residency certificate in this Directive. The Council should therefore clarify the interaction between the tax consequences defined in the UNSHELL Directive and the issuing of an electronic tax residency certificate as defined in this Directive. / 1a COM(2021)0565.

AddedRecital 6: (6) ‘Cum-ex’ and ‘cum-cum’ - or dividend arbitrage trading schemes refer to the practice of trading shares in such a way as to conceal the identity of the actual owner and to enable both or multiple parties involved to claim withholding tax refunds on capital gains tax that had only been paid once and whereas those criminal practices involved financial intermediaries. As the financial intermediaries most often engaged in the securities’ payment chains are large institutions as defined in the Capital Requirements Regulation (CRR)29 as well as central securities depositories providing withholding tax agent services, these entities should be obliged to request registration on the national registers of Member States established as above. Other financial intermediaries should be allowed to request registration at their discretion. Registration should be requested by the financial intermediary itself by submitting an application to the competent authority designated by the Member State, including evidence that the financial intermediary meets certain requirements. The purpose of the requirements is to verify that the requesting intermediary meets the requirements of relevant EU regulation and supervised for compliance therewith. Where the financial intermediary is established outside the EU, it is required to be subject to legislation in the third country of its residence that is comparable for the purposes of this Directive and the third country of residence is neither on Annex I …

AddedRecital 8: (8) In order to render the Capital Markets Union more effective and competitive, procedures for relief of excess withholding taxes on securities’ income should be facilitated and accelerated, where adequate information has been provided by relevant certified financial intermediaries, including on the identity of the investor. The relevant certified financial intermediaries consist of all the certified financial intermediaries in the payment chain between the investor and the issuer of the securities, which might be required to also provide information on payments effected by non-certified financial intermediaries in the chain, as per the policy choice of each Member State. Taking into account the different approaches in Member States, two types of procedures are envisaged: (i) relief at source by direct application of the appropriate tax rate at the time of withholding and (ii) quick refund within a maximum of 50 days of the date of payment of the dividend or, as the case may be, of the date when the bond issuer must pay interest to the bond holder (coupon date). Member States should be free to introduce any of the two or a combination of both procedures, as they deem appropriate while ensuring that at least one is available for all investors, where the requirements of this Directive have been met. To ensure the proper and timely implementation of these procedures by the Member States concerned, it is appropriate to apply interest on late refunds of excess withholding taxes t…

AddedRecital 9: (9) In order to safeguard the systems for relief of excess withholding taxes, Member States maintaining a national register should also require certified financial intermediaries to verify the eligibility of investors that wish to claim a relief. In particular, certified financial intermediaries should collect the tax residence certificate of the relevant investor, and a declaration that such investor is the beneficial owner of the payment according to the legislation of the source Member State. They should also verify the applicable withholding tax rate based on the investor’s specific circumstances and indicate if they are aware of any financial arrangement involving the underlying securities that has not been settled, expired or otherwise terminated at the ex-dividend date. The due diligence requirements could be applied on an annual basis. Certified financial intermediaries should be held liable for tax revenue losses that have been incurred due to the inadequate fulfilment of these obligations, to the extent that national law of the Member State where the loss incurred so provides. In order to ensure proportionality of the burden and liability imposed on certified financial intermediaries, reduced verification obligations should apply to all relief procedures, where the risk of abuse is low and in particular where the total amount of the dividend paid to the investor for a shareholding in a company is lower than EUR 1500. Should such abuse be proven otherwise, Member Sta…

AddedRecital 12: (12) The proper implementation and enforcement of the proposed rules in each Member State concerned is critical for the promotion of the CMU as a whole as well as for the protection of the tax base of Member States and should therefore be monitored by the Commission. Member States should therefore communicate to the Commission on a regular basis, statistical information as specified by means of implementing act, on the implementation and enforcement in their territory of national measures adopted pursuant to this Directive. The Commission should prepare an evaluation on the basis of the information provided by Member States and other available data to evaluate the effectiveness of the proposed new rules. In this context the Commission should consider the need to update the rules introduced by virtue of this Directive.

AddedRecital 14: (14) Any processing of personal data carried out within the framework of this Directive should comply with Regulation (EU) 2016/679 of the European Parliament and of the Council. Financial intermediaries and Member States may process personal data under this Directive solely with the objective of serving a general public interest, namely for the purposes of combating tax fraud, tax evasion and tax avoidance, safeguarding tax revenues and promoting fair taxation, which strengthen opportunities for social, political and economic inclusion in Member States. Only entities participating in the WHT relief procedures under this Directive should have access to those data. Only the minimal amount of personal information required to identify underreporting, non-reporting, tax fraud, or abuse should be sent. Lastly, personal information should only be retained for as long as required for that purpose. To allow the effective pursuit of this objective, it is necessary to restrict certain rights of individuals provided by the aforementioned Regulation, insofar as the exercise of such rights may jeopardize investigations, especially the right to be notified on the processing of their data and the scope thereof as well as the right to consent on certain types of data processing. As soon as the circumstances that justified the restriction no longer apply, the rights of the data subjects should be reinstated.

AddedRecital 16 a (new): (16a) This Directive should be reviewed regularly with the aim of further facilitating withholding tax relief for retail investors.

AddedArticle 3 – paragraph 1 – point 19: (19) ‘double tax treaty’ means an agreement or convention that provides for the elimination of double taxation of income, and where applicable, capital, in force between two (or more) jurisdictions.

AddedArticle 4 – paragraph 2 – introductory part: 2. Member States shall issue the eTRC based on the available information within three working days from submission of a request, subject to paragraph 4. The eTRC shall comply with the technical requirements of Annex I and shall include the following information:

AddedArticle 4 – paragraph 2 – point a: (a) the first and last name of the taxpayer and the date and place of birth, if the taxpayer is an individual, or its name and its European Unique Identifier number (EUID), if the taxpayer is an entity, where available;

AddedArticle 4 – paragraph 2 – point f a (new): (fa) the double tax treaty;

AddedArticle 4 – paragraph 2 – point g: deleted

AddedArticle 4 – paragraph 4: 4. If more than five working days are required to verify the tax residency of a specific taxpayer, the Member State shall inform the person requesting the certificate of the additional time needed and the reasons for the delay that, in any case, shall be no longer than five working days.

AddedArticle 4 – paragraph 5: 5. Member States shall recognise an eTRC issued by another Member State as adequate proof of residence of a taxpayer in that other Member State in accordance with paragraph 3. In any case, Member States may prove the residence for tax purposes in their jurisdictions.

AddedArticle 4 – paragraph 5 a (new): 5a. Member States shall take the appropriate measures to require an individual or entity deemed resident in their jurisdiction for tax purposes to inform tax authorities issuing the eTRC about any change that could affect the validity or the content of the eTRC.

AddedArticle 4 – paragraph 6: 6. The Commission shall adopt implementing acts laying down standard computerised forms in machine-readable format, including the linguistic arrangements, and technical protocols, including security standards, for the issuance of an eTRC. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 18.

AddedArticle 5 – paragraph 4 – point d a (new): (da) information on the fees charged for the provision of services under this Directive.

AddedArticle 7 – paragraph 1 – introductory part: 1. Member States shall ensure that a financial intermediary is registered in their national register of certified financial intermediaries within two months from submission of a request of the financial intermediary that provides evidence of all of the following requirements:

AddedArticle 7 – paragraph 1 – point b: (b) if the requesting financial intermediary is a credit institution, an authorisation in the jurisdiction of residence for tax purposes to perform custodial activities under points (12) or (14) of Annex I of Directive 2013/36/EU or comparable legislation of a third country; if the requesting financial intermediary is an investment firm, an authorisation in the jurisdiction of residence for tax purposes to perform custodial activities under Section B(1) of Annex I of Directive 2014/65/EU or comparable legislation of a third country or; if the requesting financial intermediary is a central securities depository, an authorisation in the jurisdiction of residence for tax purposes under Regulation EU 909/2014 or comparable legislation of a third country of residence; the Commission shall issue guidance on minimum standards for comparable legislation;

AddedArticle 7 – paragraph 2: 2. Financial intermediaries shall notify without undue delay the competent authority of the Member State of any change in the information provided under points (a) to (c), providing the relevant documents where necessary.

AddedArticle 7 – paragraph 2 a (new): 2a. Member States shall inform all other Member States about rejections of registration as soon as possible, according to Article 9 of Council Directive 2011/16/EU1a on administrative cooperation in the field of taxation. / 1a Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation and repealing Directive 77/799/EEC (OJ L 64, 11.3.2011, p.1, ELI: http://data.europa.eu/eli/dir/2011/16/oj).

AddedArticle 8 – paragraph 3: 3. The Member State that removes a certified financial intermediary from its national register shall inform, according to Directive 2011/16/EU, without undue delay all other Member States that maintain a national register according to Article 5, specifying the grounds of the removal according to paragraphs 1 and 2.

AddedArticle 8 – paragraph 3 a (new): 3a. Member States shall update their national registers to reflect the status of financial intermediaries no longer holding certification. In cases where the removal as a certified financial intermediary results from a decision by a Member State, the specific reasons for such action shall be clearly indicated in the register.

AddedArticle 9 – paragraph 1: 1. Member States shall take the necessary measures to require certified financial intermediaries in their national register to report to the competent authority the information referred to in Annex II as soon as possible within a maximum of 20 calendar days after the record date, unless a settlement instruction in respect of any part of a transaction is pending on the record date, in which case the reporting for that transaction shall take place as soon as possible after the settlement. If 15 days after the record date, settlement is still pending for any part of the transaction, certified financial intermediaries shall report within the next 5 calendar days indicating the part for which settlement is pending.

AddedArticle 9 – paragraph 2: 2. Member States shall provide that certified financial intermediaries do not need to report information referred to in Annex II, heading E, if the total dividend paid to the registered owner on the owner’s shareholding in a company does not exceed EUR 1500.

AddedArticle 9 – paragraph 5: 5. Member States shall require certified financial intermediaries in their national register to keep the documentation supporting the information reported for six years and to provide access to any other information, as well as access to their premises for the purpose of audit and shall require certified financial intermediaries to delete or anonymise any personal data included in such documentation as soon as the audit has been completed and at the latest six years after reporting.

AddedArticle 10 – paragraph 2 – point a: (a) the dividend has been paid on a publicly traded share that the registered owner acquired within a period of five days before the ex-dividend date;

AddedArticle 10 – paragraph 3 a (new): 3a. The control powers of Member States, pursuant to their national legislation, on the taxable income to which the relief was applied, shall not be limited.

AddedArticle 11 – paragraph 1 – introductory part: 1. Member States shall take the necessary measures to ensure that the certified financial intermediary requesting relief under Article 12 and/or 13 on behalf of a registered owner obtains from such registered owner a declaration that the registered owner:

AddedArticle 11 – paragraph 1 – point a: (a) is the beneficial owner of the dividend or interest as defined under the national legislation of the source Member State or a double tax treaty; and

AddedArticle 11 – paragraph 2 – introductory part: 2. Member States shall take the necessary measures to ensure certified financial intermediaries requesting relief under Article 12 and/or 13 on behalf of a registered owner to verify:

AddedArticle 11 – paragraph 2 – point a a (new): (aa) the risks of residence and citizenship by investment schemes that present a potentially high risk, as identified by the Organisation for Economic Co-operation and Development (OECD), associated with the possible misuse by the registered owners of an eTRC issued by Member States or third countries which offer such schemes;

AddedArticle 11 – paragraph 2 – point d: (d) in case of a dividend payment and based on the information available to the certified financial intermediary, the possible existence of any financial arrangement that has not been settled, expired or otherwise terminated at the ex-dividend date, unless the dividend paid to the registered owner for each group of identical shares held does not exceed EUR 1500.

AddedArticle 11 – paragraph 2 a (new): 2a. Member States may allow to obtain the declaration according to paragraph 1 and to carry out the verifications according to paragraph 2 on an annual basis and, on an ad hoc basis, when there are reasons to assume a change of circumstances or incorrect or unreliable information.

AddedArticle 11 – paragraph 3 a (new): 3a. The Commission is empowered to adopt guidelines for the fulfilment of the requirements laid down in paragraph 2.

AddedArticle 13 – paragraph 1: 1. Member States may allow certified financial intermediaries maintaining a registered owner’s investment account to request a quick refund of the excess withholding tax, on behalf of such registered owner in accordance with Article 10 if the information referred to in paragraph 3 of this Article is provided within 25 calendar days from the date of payment of the dividend or interest.

AddedArticle 13 – paragraph 2: 2. Member States shall process a refund request made in accordance with paragraph 1 within 25 calendar days from the date of such request or from the date reporting obligations under this Directive have been met by all relevant certified financial intermediaries, whichever is the latest. Member States shall apply interest in accordance with Article 14 on the amount of such refund for each day of delay after the 25th day, unless the Member State has reasonable doubts on the legitimacy of the refund request.