EU Council agrees on new rules for withholding tax procedures

The proposed Faster and Safer Relief of Excess Withholding Taxes (FASTER) directive (77-page PDF/605KB) aims to help boost cross-border investment, improve the functioning of capital markets within the union, and fight tax fraud. The proposal for the FASTER directive was initially submitted by the European Commission in June 2023.

Dublin-based tax expert Robert Dever of Pinsent Masons said a number of aspects of the proposal should go a long way to making withholding tax procedures more efficient, secure and simplified for investors, financial intermediaries and tax authorities within the EU. Provisions under the new regime include the introduction of a common EU digital tax residence certificate and requirement on member states to implement fast-track procedures to complement existing standard withholding tax refund procedures.

“The agreement on new rules for withholding tax procedures demonstrates that the EU is not content to rest on its laurels from a tax perspective and that there is continued appetite to drive new tax initiatives notwithstanding a period of unprecedented and ongoing global tax reform,” said Dever.

For Irish businesses, the difficulty posed by withholding tax procedures does not tend to be a practical one due to the availability of a number of broad exemptions from Irish withholding taxes on the likes of dividends and interest. But Dever said that “the proposal is to be welcomed to the extent that it can lessen the burden often faced by Irish outbound investment and other cross-border investors when dealing with withholding tax refund procedures in other member states.”

In a bid to make it easier for national tax authorities to effectively detect potential tax fraud or abuse, the FASTER directive will set a standardised reporting obligation for financial intermediaries, such as banks and investment platforms. As part of the initiative, a European Certified Financial Intermediary Portal will be created through which financial intermediaries will need to register to be certified. Following registration, they will need to report the necessary information to the relevant tax authorities so that transactions can be traced.

Following the agreement, and once a legal linguistic check has been completed on the agreed text, the directive will need to be formally adopted by the EU Council prior to it being published in the Official Journal and entering into force. Member states will then need to transpose the directive into their domestic laws by 31 December 2028 with the rules to become applicable from 1 January 2030.