EU to begin consultation on new withholding tax system

The EU has launched its public consultations regarding withholding tax administration inside the union.

Currently, residents of the EU member state that receives interests or dividends out of their investment in securities in another member state shall apply for partial return of withholding tax paid in the source country. Such refund is available in cases where tax rate paid in source country is higher than the one fixed in double taxation treaty.

This lengthy procedure reduces investment attractiveness in the EU companies securities. To change the situation European Commission proposes to repeal the obsolete and burocratic procedure, as it is informed by STEP.

The EC proposes three separate ways to resolve this situation.

1. To unify process of application for the withholding tax refund among the EU member states and improve it to a single electronic application for the taxpayer across the EU.

2. To introduce new unified withholding tax calculation system across all the EU member states that would help tax authorities to apply correct DTT tax rate. This approach shall allow taxpayers to avoid tax refund procedure altogether.

3. To launch new system on the existing EU tax information exchange platform that would allow to verify taxpayer’s entitlement to the reduced DTT rate. This options includes reporting and automatic exchange of the beneficiary related tax information between the EU member states.

The main goal of the draft regulations is to reduce obstacles for the cross boarder investments as well as to introduce new system of automatic exchange between the member states.