On April 1, 2022, the European Commission opened a public consultation regarding a new EU withholding tax system to avoid double taxation. The European Commission is looking for input from all stakeholders, such as relevant EU agencies and international organizations, civil society organizations and academia, national authorities (e.g. tax competent authorities, tax agencies, central and regional finance policy makers and enforcement bodies) and private sector representatives as associations/advisors, as well as the general public, including investors and financial intermediaries.
The consultation period runs from April 1, 2022 until June 24, 2022 (midnight Brussels time).
Why is the European Commission consulting?
According to the European Commission non-resident investors’ right to a lower rate or exemption of withholding tax as laid down in double tax treaties or national rules are not always fully ensured by current functioning of withholding refund/relief procedures throughout the EU. Withholding tax refund procedures for cross-border payments have proved to be lengthy, resource-intensive and costly for both investors and tax administrations due to the difficulties for tax administrations to properly assess the entitlement to reduced withholding tax rates and the lack of digitalized procedures. On top of that, the procedures have been abused as reported by a consortium of investigative journalists that showed the existence of an alleged large-scale tax fraud known as “Cum/Ex” and “Cum/Cum” schemes in some EU Member States.
As a result non-resident portfolio investors may not exercise their right to apply for the tax treaty benefits, therefore, leading to double taxation and making it less attractive to invest in the EU market. The European Commission is preparing an initiative on improving withholding tax procedures for non-resident investors. The withholding tax initiative aims to provide Member States with the information to prevent tax abuse in the field of withholding taxes and, at the same time, accommodate a swift and efficient processing of the requests for a refund and/or a relief at source procedures of the excess taxes withheld. In this context, the Commission is inviting the public and stakeholders to express their views on the problems at stake as well as on possible measures and their potential impacts. Information received in this consultation will support the impact assessment that the European Commission is currently carrying out.
The consultation
The consultation takes place in the form of a questionnaire. Most questions in the questionnaire are multiple choice questions. However, some of the questions provide for room to give input in writing. However, the questionnaire also gives everybody who wishes so the possibility to upload a document (for example a position paper) providing additional information or to raise specific points not covered by the questionnaire.
The consultation consists out of 38 questions that are ordered in accordance with the following categories:
I. Issue at stake;
II. Need for EU action
III. Policy options
III.A. Improving withholding tax refund procedures
III.B. Establishing a common EU relief at source system
III.C. Enhancing existing administrative cooperation framework
IV. Combating Tax Abuse
Click here to be forwarded to the consultation page as available on the website of the European Commission. Please be aware that you need to have a registered account with the European Commission (which you can easily obtain) to be able to answer the questionnaire online.
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