FASTER
FASTER
The EU Ministers of Finance recently reached agreement on the new EU Directive on a “faster and safer excess tax return” (FASTER). With formal adoption set to take effect after approval from the European Parliament can you outline what the Directive aims to achieve and the implications?
On 14 May 2024, the Council of the EU reached an agreement on the “FASTER” Directive, setting out rules that aim to harmonize withholding tax procedures in the EU and make them more efficient and secure for investors, financial intermediaries and Member States. The FASTER Directive will apply in respect of publicly traded shares and publicly traded bonds and sets out three key actions to improve the efficiency of withholding tax procedures in Member States.
The first of these actions is a common EU digital tax residence certificate (“eTRC”) that tax paying investors can use in order to avail of the fast-track procedures introduced by the Directive to obtain relief from withholding taxes. Member States will be required to provide an automated process for issuing the eTRC to a natural person or entity considered to be tax resident in their jurisdiction. Further, the Directive requires the eTRC to be issued by the Member State within 14 days after a certificate request is submitted. The eTRC will cover a period not exceeding the calendar year or the period of a fiscal year for which it is issued.
The Directive then provides for two fast-track procedures, to complement the existing standard withholding tax refund procedures – a “relief at source” procedure and a “quick refund” system. Member States are able to choose which one to use, or to include a combination of both. Under the “relief at source” procedure, the tax rate applied at the time of payment of dividends or interest is directly based on the applicable rules of the double tax treaty provisions. Under the “quick refund” procedure, the initial payment is made taking into account the domestic statutory withholding tax rate and a refund of excess withholding tax imposed is to be granted within 60 days after the end of the period given to request the quick refund. It was agreed that Member States must apply the fast-track procedures if they provide relief from excess withholding tax on dividends paid for publicly traded shares. It should be noted that Member States with a national financial market capitalization representing less than 1.5% of the overall EU market capitalisation, may be exempt from applying the Directive’s quick relief systems and registration and reporting of CFIs, if a comprehensive relief-at-source system is already in place in that jurisdiction. However, the exemption does not extend to implementation of the eTRC.
Finally, The Directive sets a standardised reporting obligation for financial intermediaries such as banks or investment platforms. This will make it easier for national tax authorities to detect potential tax fraud. Member States will establish national registers where large (and optionally smaller) financial intermediaries will have to register to be certified. In order to simplify this registration procedure, the Council agreed to create a European Certified Financial Intermediary Portal. This portal will act as a central dedicated website where the national registers will be accessible.
It was agreed that Member states will have to transpose the Directive into national legislation by 31 December 2028 and generally apply the provisions of the Directive for fiscal years starting on or after 01 January 2030.
Contributor: Lee Kavanagh, Manager, Financial Services Tax.
On 14 May 2024, the Council of the EU reached an agreement on the “FASTER” Directive, setting out rules that aim to harmonize withholding tax procedures in the EU and make them more efficient and secure for investors, financial intermediaries and Member States. The FASTER Directive will apply in respect of publicly traded shares and publicly traded bonds and sets out three key actions to improve the efficiency of withholding tax procedures in Member States.
The first of these actions is a common EU digital tax residence certificate (“eTRC”) that tax paying investors can use in order to avail of the fast-track procedures introduced by the Directive to obtain relief from withholding taxes. Member States will be required to provide an automated process for issuing the eTRC to a natural person or entity considered to be tax resident in their jurisdiction. Further, the Directive requires the eTRC to be issued by the Member State within 14 days after a certificate request is submitted. The eTRC will cover a period not exceeding the calendar year or the period of a fiscal year for which it is issued.
The Directive then provides for two fast-track procedures, to complement the existing standard withholding tax refund procedures – a “relief at source” procedure and a “quick refund” system. Member States are able to choose which one to use, or to include a combination of both. Under the “relief at source” procedure, the tax rate applied at the time of payment of dividends or interest is directly based on the applicable rules of the double tax treaty provisions. Under the “quick refund” procedure, the initial payment is made taking into account the domestic statutory withholding tax rate and a refund of excess withholding tax imposed is to be granted within 60 days after the end of the period given to request the quick refund. It was agreed that Member States must apply the fast-track procedures if they provide relief from excess withholding tax on dividends paid for publicly traded shares. It should be noted that Member States with a national financial market capitalization representing less than 1.5% of the overall EU market capitalisation, may be exempt from applying the Directive’s quick relief systems and registration and reporting of CFIs, if a comprehensive relief-at-source system is already in place in that jurisdiction. However, the exemption does not extend to implementation of the eTRC.
Finally, The Directive sets a standardised reporting obligation for financial intermediaries such as banks or investment platforms. This will make it easier for national tax authorities to detect potential tax fraud. Member States will establish national registers where large (and optionally smaller) financial intermediaries will have to register to be certified. In order to simplify this registration procedure, the Council agreed to create a European Certified Financial Intermediary Portal. This portal will act as a central dedicated website where the national registers will be accessible.
It was agreed that Member states will have to transpose the Directive into national legislation by 31 December 2028 and generally apply the provisions of the Directive for fiscal years starting on or after 01 January 2030.
Contributor: Lee Kavanagh, Manager, Financial Services Tax.