The European Commission wants to make capital markets more competitive. To this end, it is promoting the so-called Faster Directive, which aims to reduce the number of tax obstacles to the free movement of capital. This proposed directive aims to make the procedures for levying and refunding withholding taxes on foreign-sourced dividends and interest faster and more secure.
Objectives of the Faster Directive
The proposal was published on 19 June under the title «New EU system to avoid double taxation and prevent tax abuse: a faster and more secure deduction of over-collected withholding taxes at source«. Its final objectives are fourfold:
- Limit excess withholding taxes on dividends and interest.
- Facilitate investments by avoiding any kind of double taxation. Even if this is only initial and can be recovered in the long run.
- Create a new EU-wide digital tax residence certificate.
Main measures incorporated in the proposal for a directive
The proposal is eminently procedural and not material. And these are the basic actions it introduces:
The digital certificate of tax residence
The European Commission is committed to the digitisation of the tax residence certificate. In this way it wants to ensure transparency and certainty about the identity of investors in securities traded on capital markets, withholders, financial intermediaries and Member States, as the case may be.
If the taxpayer is a natural person, the digital tax residence certificate (eTRC) must include their name and surname and date and place of birth. On the other hand, if the taxpayer is an entity, it shall specify its name and its European Unique Identifier (EUID). In addition, in all cases it shall specify the tax identification number, the address, the date of issue, the period covered, the identification of the tax authority issuing the certificate. It shall also include any additional information that may be relevant where the certificate is issued for purposes other than the refund of withholding tax.
Establishment and maintenance of a national register of certified financial intermediaries
Member States that have established a system for the refund of excess withholding tax levied on dividends on listed shares paid to investors resident in another Member State must have a national register of certified financial intermediaries. The aim is to facilitate the tracking of the flow of income along the whole chain of payments between intermediaries. From the issuer to the final recipient or investor.
Two procedures to alleviate problems arising from over-retention
The proposal for a directive provides for two types of procedures which Member States may apply individually or in combination:
- The exemption procedure at source. The reduced tax rate or exemption is applied directly at the time the dividend/interest is paid.
- The procedure for the rapid repayment of excess withholding. A fast-track refund procedure within a maximum of 50 days from the date of payment of the dividend or, as the case may be, the coupon date.
When will the Faster Directive enter into force
This is a proposal for a directive that is in the early stages of the procedure and is therefore still subject to changes during the process. It is expected to be approved by 31 December 2026 and its measures will apply from 1 January 2027. If you have any doubts about how the Faster Directive affects your company’s M&A processes and you need advice, please contact us.