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EU: Guidelines to simplify withholding tax on cross-border investments

EU: Guidelines to simplify withholding tax

The European Commission announced new guidelines on withholding taxes to help EU Member States reduce costs and simplify procedures for cross-border investors in the EU.

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As explained in an EC release, a new Code of Conduct offers solutions for investors that, as a result of how withholding taxes are applied, end up paying taxes twice on the income they receive from cross-border investments. For instance, a withholding tax may be withheld at source in the EU country where investment income (such as dividends, interests, and royalties) is generated. Because the income is often taxed again in the EU Member State where the investor is resident, problems of double taxation can result. While investors can file a claim for refund when double taxation occurs, refund procedures are currently difficult, expensive, and time-consuming.

The EC's recommendations form part of the EU's Capital Markets Union Action Plan that is intended to improve the system for investors and EU Member States. In particular, the Code of Conduct aims to reduce the challenges faced by smaller investors when doing business cross-border. Also, it is expected to result in quick, simplified, and standardised procedures for refunding withholding taxes where appropriate.

Implementation of the Code of Conduct is voluntary for EU Member States. It provides a snapshot of the problems faced by cross-border investors and explains how more efficient tax procedures can be put in place, and outlines a range of practical ways for EU Member States to address key issues including:

  • Measures to help smaller investors for whom the rules on the refund of withholding tax are overly complex
  • The creation of user-friendly digital forms to apply for withholding tax relief in the case of overpayment
  • A reliable and effective timeframe for tax authorities for the granting of withholding tax relief
  • A single point of contact in the EU Member State tax administrations to deal with questions from investors on withholding tax

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