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EU Proposes Double Tax Relief Improvements For Foreign Investors

by Ulrika Lomas,, Brussels

11 December 2017

On December 11, the European Commission set out proposed new guidelines on the introduction by member states of quick, simplified, and standardized procedures for refunding withholding taxes overpaid by cross-border investors.

The Commission has proposed a new Code of Conduct, which is intended to offer solutions for investors who, as a result of how withholding taxes are applied, end up paying taxes twice on the income they receive from cross-border investments.

A withholding tax is a tax withheld at source in the EU country where investment income such as dividends, interests, and royalties is generated. These levies provide a way for member states to ensure that taxes are being applied appropriately on cross-border transactions. Since the income is often taxed again in the member state where the investor is resident, problems of double taxation can result. Investors have a right to claim a refund when double taxation occurs but the Commission acknowledges that refund procedures are currently difficult, expensive, and time-consuming.

Adoption of the Code of Conduct will be voluntary for member states. To improve tax rules for investors, the Code provides for:

  • 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; and
  • A single point of contact in member state tax administrations to deal with questions from investors on withholding tax.

Commenting on the Code of Conduct's launch, Valdis Dombrovskis, Vice-President in charge of Financial Stability, Financial Services, and Capital Markets Union, said: "This is yet another important building block on the road towards a true single market for capital. Today's Code of Conduct should help investors to avoid long delays and high costs when claiming withholding tax refunds. We will now work closely with member states to make sure that the new Code of Conduct delivers tangible results."

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation, and Customs, said: "While a very important tool for protecting public finances, withholding taxes can lead to a disproportionate burden on individuals and companies when it comes to seeking tax relief. My hope is that today's Code of Conduct will help EU countries to navigate the fine balance between ensuring a consistent tax collection on income and offering tax certainty to businesses that lose out on an estimated EUR8.4bn (USD9.9bn) in compliance costs each year."

TAGS: individuals | compliance | tax | investment | business | European Commission | interest | royalties | withholding tax | dividends | European Union (EU) | Europe | Invest | Tax

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