REPORT FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT Accelerating the capital markets union: addressing national barriers to capital flows
Date: 2017-03-24
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: capital market, capital movement, financial solvency, investment abroad, investment company, marketing, residence, supplementary pension, tax relief, technical barriers to trade

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 24.3.2017  COM(2017) 147 final   REPORT FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT Accelerating the capital markets union: addressing national barriers to capital flows  
 
 
1. 

INTRODUCTION 

The  success  of  the  Investment  Plan  for  Europe  in  channelling  funding  to  projects  with  an 
added  value for the European economy depends  partly on the collective capacity of the EU 
and its Member States to overcome barriers to cross-border investment. Therefore, as part of 
the  third  pillar  of  the  Investment  Plan,  which  focuses  on  removing  obstacles  to  investment, 
the  Commission  committed  to  accelerating  the  process  of  creating  a  capital  markets  union 
(CMU). 

Building integrated financial markets as part of the CMU requires important decisions at EU 
level, but also decisive commitments by each Member State to tackle national barriers. Action 
at  national  level  is  needed  to  set  up  the  clear,  predictable  and  stable  environment  that  will 
allow  for  more  investment  and  a  more  efficient  allocation  of  capital,  and  ultimately  boost 
financing of business and infrastructure. 

Following a call by the ECOFIN Council of June 2015, the Commission and an expert group 
of Member States’ representatives have been working together, with the European Parliament 
as observer, to map national barriers to cross-border capital flows and find the best ways of 
tackling  those  that  are  either  not  justified  by  public  interest  considerations  or  are 
disproportionate. This work should result in a joint roadmap for removing these barriers that 
would  complement  other  initiatives  on  existing  obstacles  to  investment  identified  by  the 
Commission  in  the  context  of  the  European  Semester  and  the  CMU-related  work  aimed  at 
developing capital markets with assistance provided by the Structural Support Reform Service 
(SRSS).1 

The Commission believes that this collaborative method of working with Member States, on 
the basis of the mutual evaluation of national requirements, peer reviews and an exchange of 
best  practices,  can  bring  substantial  benefits.  In  this  spirit,  the  expert  group  has  started 
working  on  a  number  of  barriers  that  are  mainly  in  the  area  of  national  competence,  which 
were  selected  based  on  Member  States’  input  and  stakeholders’  replies  to  various  CMU-
related  consultations.2  This  report  represents  the  Commission's  interpretation  of  the  legal 
situation in the Member States, based on the evidence and information available. Further to 
the  adoption  of  the  first  version  of  this  report  on  27  February  2017,  the  Commission  was 
made aware of certain inaccuracies, mainly due to incomplete or conflicting information, and  
consequently decided to adopt this amended version.  

A  first  set  of  barriers  identified  by  the  expert  group  includes  issues  that  hamper  investors’ 
cross-border  operations  throughout  the  investment  cycle.  This  report  distinguishes  between 
ex ante  barriers  (of  immediate  concern  when  investors  consider  engaging  in  cross-border 
activity),  in itinere  barriers  (deterring  investors  from  maintaining  or  increasing  their  cross-

1  The SRSS was established in July 2015 to provide technical support to Member States, upon their request, in 
pursuing growth-enhancing structural reforms. The Commission has proposed a Structural Reform Support 
Programme (SRSP) in order to strengthen the overall capacity of Member States to prepare and implement 
institutional, structural and administrative reforms. This includes providing technical  assistance to Member 
States in the area of capital markets development. 

2 

In  particular,  the  CMU  Green  Paper  consultation  (http://ec.europa.eu/finance/consultations/2015/capital-
evidence 
consultation 
markets-union/index_en.htm), 
and 
(http://ec.europa.eu/finance/consultations/2015/financial-regulatory-framework-review/index_en.htm) 
the 
funds 
cross-border 
(http://ec.europa.eu/finance/consultations/2016/cross-borders-investment-funds/index_en.htm). 

consultation 

distribution 

investment 

call 

the 

the 

the 

for 

on 

on 

of 

2 

 
 
                                                            
border  exposure)  and  ex post  barriers  (leading  to  difficulties  at  the  end  of  the  investment 
process). 

For each of the above, this report builds on the discussions in the expert group and proposes 
next  steps,  without  necessarily  reflecting  a  consensus  between  the  Member  States  on  each 
subject. The Commission expects Member States to agree on the proposed roadmap and take 
action  accordingly.  It  intends  to  monitor  the  implementation  of  the  roadmap  and,  while 
continuing to work with the Member States to gather exhaustive and updated information, it 
invites the expert group to identify other barriers in CMU-relevant areas. It sees the roadmap 
as a living document that will need to be updated with additional action, to be taken before 
2019, on barriers which may be identified in a second stage. 

2.  EX ANTE BARRIERS 

2.1.  Barriers to the cross-border distribution of investment funds 

With  80 %  of  funds  from  undertakings  for  collective  investment  in  transferable  securities 
(UCITS)  and  40 %  of  alternative  investment  funds  (AIF)  marketed  cross-border,  the  EU 
marketing passport has contributed to creating a successful cross-border market. However, the 
distribution of funds remains geographically limited. A third of funds marketed cross-border 
are sold in only one other Member State and another third in no more than four other Member 
States.  The  reasons  may  include  the  concentrated  fund  distribution  channels  in  individual 
Member  States,  cultural  preferences  and  a  lack  of  incentives  to  compete  across  borders. 
However,  replies  to  various  consultations  also  refer  to  additional  national  requirements 
adopted by Member States when transposing the AIFM Directive3 and the UCITS Directive4. 

The  work  of  the  expert  group  in  this  area  focused  on  identifying  and  tackling  barriers 
stemming from national provisions or practices. In addition to this and in view of the need to 
act at the EU level, the Commission launched a public consultation on barriers to the cross-
border  distribution  of  investment  funds,  which  also  considers  these  themes.5  Further  work 
arising  from  the  Commission’s  consultation,  which  will  take  account  of  this  report,  will  be 
announced in due course. 

2.1.1.  Marketing requirements 

Several Member States stated that wide disparities in national rules and divergent supervisory 
approaches  were  a  significant  impediment  to  a  fully  effective  EU  passport  in  the  asset 
management sector. 

Legal uncertainty is especially high: 

(i)   in  the  very  early  stages  of  the  life-cycle  of  a  fund,  such  as  the  phase  preceding  its 
launch, when asset managers may need to test the appetite of potential investors; and 

3  Directive  2011/61/EU  of  the  European  Parliament  and  of  the  Council  of  8 June  2011  on  Alternative 
Investment  Fund  Managers  and  amending  Directives  2003/41/EC  and  2009/65/EC  and  Regulations  (EC) 
No 1060/2009 and (EU) No 1095/2010, OJ L 171, 1.7.2011, p. 1. 

4  Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of 
laws,  regulations  and  administrative  provisions  relating  to  undertakings  for  collective  investment  in 
transferable securities (UCITS), OJ L 302, 17.11.2009, p. 32. 

5  The  public  consultation  ended  on  9 October  2016  (http://ec.europa.eu/finance/consultations/2016/cross-

borders-investment-funds/index_en.htm). 

3 

 
 
                                                            
(ii)  once  the  fund  is  launched,  when  fund  managers  may  be  approached  by  potential 

clients. 

Management  companies  are  faced  with  the  expense  of  researching  and  complying  with 
individual  national  marketing,  financial  promotion  and  consumer  protection  regimes 
including time-consuming translations and required changes to their marketing materials. 

In search for greater clarity, Member States in the expert group also discussed whether  pre-
marketing to, and reverse solicitation by potential professional clients could be considered as 
not  being  ‘marketing’  of  units  or  shares  of  a  fund  and  thus  not  be  subject  to  national 
marketing requirements. 

The expert group  considered that  pre-marketing should cover situations in  which draft fund 
documentation,  but  not  subscription  material,  is  provided  to  a  limited  number  of  potential 
professional clients, in the absence of any possible subscription choice. 

Reverse solicitation6 was then construed as a request by a professional client regarding units 
or shares of a specifically designated existing fund without a prior direct or indirect offer or 
placement  (i.e.  solicitation)  from  the  management  company  or  on  its  behalf.  The  contact  is 
thus  to  be  established  only  on  the  investor’s  initiative  and  may  not  constitute  a  reaction  to 
previous offers or placements. 

The Commission welcomes the work of the Member States through the expert group towards 
identifying a common understanding of pre-marketing and reverse solicitation practices 
and  invites  them  to  continue  reviewing  their  national  rules,  with  the  aim  of  promoting 
convergence in this area. The Commission also invites Member States to continue working 
with  the  European  Securities  and  Markets  Authority  (ESMA)  to  achieve  supervisory 
convergence in this area. 

2.1.2.  Administrative arrangements 

Although  allowed  by  the  UCITS  Directive,  diverging  domestic  administrative  arrangements 
imposed by host Member States could be seen as a barrier to the cross-border marketing of 
funds  and  are  not  always  justified  in  terms  of  added  value  for  local  investors,  especially  in 
view of developments in new technologies. 

Most Member States require that facilities for redeeming, subscribing and obtaining payment 
be  based  on  their  territory.  Several  Member  States  apply  the  same  requirement  to  AIFs 
marketed  to  retail  investors  or  require  that  the  paying  agent  tasks  be  performed  by  a  local 
credit institution for consumer protection reasons. A few Member States also require a local 
distributor to be appointed once the UCITS or AIF is marketed to retail investors. 

Without prejudice to future initiatives, the Commission invites Member States to further map 
the administrative arrangements currently in place in their national legislation, with a view to 
eliminating unnecessary administrative burdens by 2019. 

2.1.3.  Regulatory fees for marketing cross-border 

A formal notification process applies in respect of the passporting of all EU investment funds 
and in many cases is subject to a fee applied by national competent authorities (NCAs). 

6  Reverse solicitation is a practice largely confined, but not strictly limited, to AIFs and professional investors 

in particular. 

4 

 
 
                                                            
Arrangements vary considerably, in terms both of the absolute level of the fees and how they 
are calculated, and include the following factors: the fund’s regulatory form, the target market 
(professional  or  retail),  the  number  of  sub-funds  and  the  assets  under  management.  For 
example,  the  one-off  registration  fee  for  a  stand-alone  UCITS  can  vary  from  EUR 115  to 
EUR 1 100, while the one-off registration fee for a stand-alone AIF can vary from EUR 200 
to EUR 2 520. The annual fees for stand-alone UCITS and AIFs can range from EUR 200 to 
more than EUR 4 000. 

The  range  of  regulatory  fees  charged  by  host  Member  States,  the  lack  of  transparency 
concerning  their  calculation  methods  or  the  applicable  regulatory  frameworks  hinder  the 
development  of  the  cross-border  marketing  of  funds  across  the  EU.  Notification  procedures 
contained in the various pieces  of fund legislation do not currently include any reference to 
regulatory  fees.  In  some  cases,  such  as  EuVECA  and  EuSEF,  7  all  supervisory  powers  are 
reserved for the home competent authority and host authorities are expressly prohibited from 
imposing  any  requirements  or  administrative  procedures  in  relation  to  marketing.  The 
Commission  has  already  proposed  to  decrease  the  costs  managers  incur  by  explicitly 
prohibiting fees imposed by host NCAs in its proposals to amend the EuVECA and EuSEF 
Regulations. 

The  expert  group  underlined  the  differences  in  national  supervisory  arrangements  in  the 
context of the UCITS and the AIFM Directives and noted that the fees may be seen as either 
covering  the  supervisory  and  administrative  costs  incurred  by  the  NCAs  in  handling  the 
notification and/or as a measure to create a level playing field between domestic and foreign 
players and avoid regulatory arbitrage. 

Although the administrative fees might not be a significant barrier in absolute terms, together 
with the legal and consulting costs of operating in various national markets they represent a 
significant burden, especially for small managers. Accordingly, Member States recognised the 
need to improve the clarity, transparency and predictability of national fees. 

Without prejudice to other initiatives in this area, the Commission invites Member States to 
build  on  the  discussions  in  the  expert  group  and  undertake  to  ensure  clarity  and 
transparency  in  their  regulatory  fees  framework.  Member  States  should  publish 
information  on  all  fund  notification-related  fees,  whether  one-off  or  annual,  in  a 
comprehensive and user-friendly manner on a single national public website. 

As  part  of  the  consultation  on  cross-border  fund  distribution,  the  Commission  is  assessing 
whether  notification  fees  are  compatible  with  an  efficient  notification  procedure,  the 
passporting rights provided for in legislation and, if fees were to be allowed, how to ensure 
that they are proportionate and not excessive. To the extent fees are allowed, the Commission 
intends  to  continue  reflecting  with  the  Member  States  and  ESMA  on  the  merits  of  a 
single public domain for fee-related information, in the form of a comparative website or a 
central repository. 

2.2.  Requirements on investment by pension funds 

The expert group addressed the issue of a possible home bias in the choice of investments due 
to national restrictions on pension fund investments. This could be of relevance for funds in 
the  so-called  ‘pillar  1  bis’  (operating  under  the  social  security  umbrella,  but  privately 

7  Proposal  for  a  Regulation  amending  Regulation  (EU)  No 345/2013  on  European  venture  capital  funds 

(EuVECA) and Regulation (EU) No 346/2013 on European social entrepreneurship funds (EuSEF). 

5 

 
 
                                                            
managed)  and  ‘pillar 2’  (occupational  pension  schemes).  ‘Pillar  3’  (personal  pension 
schemes) is mostly covered by insurance regulations and is less likely to be concerned by this 
type  of  restriction.  Work  to  date  has  confirmed  that  many  Member  States  apply  limits  on 
investments in various asset classes, in shares traded on non-regulated markets or in unlisted 
shares.  The  great  majority  of  geographical  restrictions  apply  only  to  investment  outside  the 
EU, EEA and/or OECD. They all seem justified by general prudential rules8 and are not the 
main factor limiting cross-border investment in the EU. 

Some  pension  funds  may  have  a  certain  national  bias,  which  could  be  explained  less  by 
national regulatory constraints than by other factors affecting their investment decisions, such 
as  business  environment,  project-related  guarantees  and  administrative  and  tax  obstacles.9 
Some pension funds invest cross-border, but seem to do so to a large extent outside the EU. 

The  Investment  Plan  for  Europe,  through  the  European  Investment  Fund  and  the  European 
Fund for Strategic Investments (EFSI), represents an opportunity to  increase  pension funds’ 
cross-border investment in the EU. The Copenhagen Infrastructure II10 is one example of joint 
investment by pension funds in renewable energy projects in Germany and the UK, with the 
support  of  EFSI.  The  Commission  has  recently  launched  a  pan-European  Venture  Capital 
Fund-of-Funds initiative, with the purpose of attracting more private institutional investment, 
including from pension funds.  

The Commission invites Member States to focus in a sub-group on successful examples of 
cross-border investment in the EU, with the participation of the pension fund industry, 
to: 

(i)   identify  the  main  drivers  in  pension  funds’  investment  decisions  and  promote  best 

practices; and 

(ii)  raise  awareness  about  new  opportunities  under  the  Investment  Plan  in  order  to  make 

infrastructure investment more attractive and accessible to institutional investors. 

The Commission invites Member States to: 

(i)   promote  the  opportunities  offered  by  the  European  Investment  Advisory  Hub  and  the 

European Investment Project Portal; 

(ii)  strengthen  the  role  of  national  promotional  banks  (NPBs)  and  the  complementarity  of 

public and private funds; and 

(iii) support  the  establishment  of  a  network  of  NPBs,  in  coordination  with  the  European 
Investment Bank,11 to align efforts in support of equity and risk capital and fully deliver 
on the objectives of EFSI 2.0.12 

8 

In  line with  Article  18  of  the  Directive 2003/41/EC (IORP)  and Article  132 of  the Directive  2009/138/EC 
(Solvency II). 

9  The  Commission  launched  a  study  to  identify  potential  discriminatory  tax  treatment  of  cross-border 

investments by pension funds and life insurance companies. 

10  http://cipartners.dk/ 
11  For  example,  the  European  Investment  Fund  —  national  promotional  institutions’  Equity  Platform; 

http://www.eif.org/what_we_do/equity/NPI/index.htm 

12  Strengthening European investments for jobs and growth: Towards a second phase of the European Fund for 
Strategic  Investments  and  a  new  European  External  Investment  Plan,  COM(2016)  581  final,  (http://eur-
lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52016DC0581&from=en).  

6 

 
 
 
                                                            
2.3.  Different national approaches to crowdfunding 

The  Commission  is  currently  monitoring13  the  development  of  investment-based  and 
lending-based  crowdfunding  and  notes  that  the  available  studies  indicate  that  cross-border 
activity remains limited.14 

Different  consumer  or  investor  protection  rules,  among  other  factors,  seem  to  lead  many 
platforms  to  refuse  to  provide  their  services  to  non-residents  and  make  extension  to  new 
markets possible only through new establishments. 

Other potential national barriers to cross-border activity include differences in: 

 

the  definitions  of  crowdfunding  and  the  scope  of  activities  for  investment-based 
models; 

  national credit brokerage rules for lending-based models; 

  conditions for authorisation (for example capital requirements); and 

  business  requirements  (such  as  professional  qualifications,  information  and  risk 

warnings, due diligence, conflicts of interest, investment limits). 

This  diversity  raises  concerns  as  to  whether  platforms  can  access  other  national  markets 
without  having  to  establish  there,  how  consumers  are  protected  when  services  are  provided 
cross-border on a temporary basis and whether authorities can take account of the fulfilment 
of  requirements  in  other  Member  States  (for  example in  respect  of  minimum  capital  or 
organisational structures). 

Concerns  have  also  been  raised  about  the  requirement  in  some  Member  States  for 
investment-based platforms to be authorised under national regimes, even though they should 
be  allowed  to  provide  cross-border  investment  services  in  relation  to  MiFID  financial 
instruments  on  the  basis  of  their  MiFID  passport.  The  Commission  will  monitor  this 
development closely. 

The  Commission  will  assess  these  issues  and  discuss  them  with  crowdfunding  platforms, 
European supervisory authorities and the Member States.  

The  Commission  invites  the  Member  States  to  consider  whether  national  crowdfunding 
legislation  provide  an  effective  and  proportionate  level  of  investor  and  consumer 
protection while permitting cross-border activity.  

13  Crowdfunding 

in 

the 

EU 

capital 

markets 

union 

(SWD(2016) 

154 

final); 

(http://ec.europa.eu/transparency/regdoc/rep/10102/2016/EN/10102-2016-154-EN-F1-1.PDF). 
With the aim of improving SMEs' financial literacy on crowdfunding in its different forms, the Commission 
has developed an EU guide available at https://ec.europa.eu/growth/tools-databases/crowdfunding-guide_en   
14  For  example, The  European  alternative  finance  benchmarking  report,  University  of  Cambridge,  2015; 
(http://www.jbs.cam.ac.uk/fileadmin/user_upload/research/centres/alternative-finance/downloads/2015-uk-
alternative-finance-benchmarking-report.pdf).  

7 

 
 
 
                                                                                                                                                                                          
 
 
3. 

IN ITINERE BARRIERS 

3.1.  Residence and location requirements imposed on the managers of financial market 

players 

Requiring residence in the country as a condition for appointment to certain positions hampers 
local  companies  seeking  to  attract  foreign  expertise.  It  also  affects  foreign  companies  that 
want their own staff to be involved in the management of a subsidiary. 

According to information available to the Commission, such requirements exist in a limited 
number of Member States and could be found in legislation or in supervisory practice. They 
might affect the majority of board members or only one or two. They may apply to all types 
of financial services or only to some, such as insurance, banks or fund managers established 
in these countries.  

A few Member States require that senior staff in charge of daily management be permanently 
present at the national premises of the entity. 

Even though such requirements might not pose specific problems for large banks or insurance 
companies,  their  suitability  is  doubtful  and  they  can  negatively  impact  smaller  financial 
services providers, as well as the personal freedom of the individuals concerned.  

Member  States  put  forward  various  reasons  for  these  requirements,  such  as  easing 
supervision, ensuring effective management, geographic characteristics and preventing fraud. 
However,  these  restrictions  to  fundamental  single  market  freedoms  do  not  appear  to  be 
justified, suitable and limited to what is necessary, since they are formulated in general terms. 
Moreover, modern communication methods could in most situations be seen as sufficient to 
achieve some of these objectives. 

Nevertheless,  NCAs  would  be  able to  require that  managers  commit  sufficient  time  to  their 
mandate,  that  they  are  present  when  needed  and  that  they  have  the  necessary  knowledge, 
skills and experience for the position. While not determining on its own, residence could be 
one of the elements considered in this respect. 

The  Commission  invites  Member  States  to  remove  residence  requirements  on  managers  of 
companies in the financial sector, residing in the EU, where they are not justified, suitable 
or proportionate. 

3.2.  Insufficient financial literacy 

Faced with increasingly complex financial products, consumers and SMEs may make unwise 
financial  decisions  without  a  proper  understanding  of  the  risk  involved  or  miss  optimal 
investment or funding opportunities, especially cross-border ones. 

Member States have adopted various financial literacy programmes.15 Most actions focus on 
the basic financial education of core social groups (such as young adults or pensioners) and 
vulnerable  groups  (for  example  immigrants  and  young  mothers)  without  necessarily 
mentioning  cross-border  options,  overall  public  knowledge  of  which  is  uneven  and 
incomplete. 

15  See  Financial  education  in  Europe:  trends  and  recent  developments,  OECD  Publishing  (2016),  Paris,  

(http://dx.doi.org/10.1787/9789264254855-en). 

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Most Member States have taken specific initiatives to help SMEs. One key field of action in 
promoting the CMU is thus complementing EU funding for SMEs16 with effective support for 
those  seeking  market-based  funding,  including  in  other  Member  States,  by  identifying  and 
sharing innovative (mostly online) solutions. In this context, the Enterprise Europe Network 
provides  a  capillary  advisory  service  to  European  SMEs  on  various  topics,  including  on 
improving their financial literacy. 

Any such solutions should take account of the wide disparities in levels of financial education 
across  and  within  the  Member  States17.  They  should  consider  approaches  other  than  formal 
education and leave scope for innovative forms of hands-on experience. 

The Commission welcomes Member States’ agreement to continue the work on financial 
literacy18 through exchange of best practices on the design, implementation and evaluation of 
financial  literacy  programmes  for  specific  target  groups  and  financial  products,  taking  into 
account the cross-border dimension. 

The expert group could contribute to possible CMU-related initiatives for the development of 
innovative  solutions  to  improve  SMEs’  knowledge  and  support  them  in  accessing  capital 
market sources of finance. 

3.3.  Other issues 

The Commission notes that some Member States have referred to barriers related to banking, 
including possible barriers to the movement of liquidity within cross-border banking groups, 
which  NCAs  have  imposed  on  top  of  existing  prudential  requirements.  Such  issues  should 
disappear at the latest by 1 January 2018, with the full introduction of the liquidity coverage 
ratio at a rate of 100 %, as regularly monitored by the European Banking Authority.19 Some 
Member States have also mentioned the difficulty that national supervisors have in granting 
cross-border waivers from liquidity requirements to an institution and its EU subsidiaries, and 
supervising them as a single liquidity sub-group. This issue is being discussed in other fora. 

4.  EX POST BARRIERS 

4.1.  Differences in national insolvency regimes 

The  latest  CMU  Communication20  stressed  the  negative  impact  that  the  differences  and 
inefficiencies  in  some  national  insolvency  regimes  have  on  cross-border  investment  and 
lending.  These  generate  legal  uncertainty,  additional  costs  and  pose  barriers  to  the  efficient 
restructuring of viable companies, including cross-border groups, in the EU. 

16  See the 2014-2020 Programme for the Competitiveness of Enterprises and SMEs (COSME). 
17  Eurobarometer 
report_en.pdf  

(2012),  http://ec.europa.eu/internal_market/finservices-retail/docs/policy/eb_special_373-

18  This work will be done in a sub-group of Member States led by Croatia. 
19  Article 412(5) of Regulation (EU) 575/2013 on prudential requirements for credit institutions and investment 

firms and amending Regulation (EU) No 648/2012 (CRR). 

20  See  Commission  Communication  of  14  September  2016:  Capital  Markets  Union  —  accelerating  reform 

(http://ec.europa.eu/finance/capital-markets-union/docs/20160913-cmu-accelerating-reform_en.pdf). 

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The  Commission  invites  the  Member  States  and  the  European  Parliament  to  support  the 
recent  Commission  proposal  on  restructuring  and  second  chance21  and  to  consider  its 
provisions in the light of the objectives agreed for the deepening of the internal market. 

In  addition,  these  national  disparities  impact  the  banks’  lending,  as  they  face  different 
situations  in  terms  of  delays,  costs  and  value  recovery.  In  order  to  compile  a  detailed  and 
reliable  picture,  the  Commission  has  launched  an  initiative  to  benchmark  national  loan 
enforcement regimes, including insolvency arrangements. 

The  benchmarking  exercise,  with  results  expected  in  summer  2017,  will  assist  Member 
States  seeking  to  increase  the  efficiency  and  transparency  of  their  insolvency  and  loan 
recovery regimes. 

4.2.  Discriminatory and burdensome procedures for withholding tax relief 

Capital  market  investors  and  Member  States  have  repeatedly  identified  withholding  tax 
(WHT) relief procedures as a major deterrent to cross-border investment. As pointed out by 
the  ECOFIN  Council  of  November  2015  in  support  of  CMU  initiatives,  there  is  a  need  for 
‘pragmatic  solutions  to  longstanding  tax  obstacles  such  as  double  taxation  linked  to  current 
withholding tax arrangements’. 

Given  this  political  mandate,  the  expert  group  discussed  the  nature  of  the  problem  and 
existing best practices. It took note of the view that a well-functioning CMU needs to tackle 
this  matter,  while  acknowledging  that  any  steps  beyond  mapping  relevant  barriers  and  best 
practices should be taken in the appropriate tax working groups. 

To  avoid  double  taxation  of  cross-border  investment,  most  bilateral  tax  treaties  provide  for 
WHT  refunds.  In  practice,  however,  investors  face  complex,  demanding,  resource-intensive 
and costly procedures. 

In  addition  to  having  to  prove  their  place  of  residence  through  complex  documentation 
requirements, investors active in the EU have to complete up to 56 separate national forms. In 
many Member States, it is not possible to complete the procedure online. Moreover, investors 
regularly  have  to  process  claims  through  a  local  agent  and  national  practices  prevent  them 
from getting help from their home financial institution. 

As  a  result,  the  length  of  time  that  several  Member  States  take  to  pay  out  reclaims  can  be 
counted  in  years,  which  is  unacceptable  considering  that  other  Member  States  manage  to 
provide refunds within a few weeks.22 

Tackling burdensome WHT refund procedures is all the more urgent as they affect all kinds of 
financial instruments (bonds, shares and derivatives) and stakeholders. Excessive compliance 
costs prevent retail investors from making claims and give rise to  substantial  administrative 
expenditure  for  institutional  investors.  In  January  2016,  the  overall  cost  of  WHT  refund 

21  On  22 November  2016  the  Commission  presented  a  proposal  for  a  Directive  on  preventive  restructuring 
frameworks,  second  chance  and  measures  to  increase  the  efficiency  of  restructuring,  insolvency  and 
discharge procedures and amending Directive 2012/30/EU (COM(2016) 723).  

22   "Workable solutions for efficient and simplified fiscal compliance procedures related to post-trading within 
2013 

the 
Tax 
(http://ec.europa.eu/info/publications/report-tax-barriers-business-advisory-group-tbag_en)  

Advisory 

Business 

Barriers 

Group, 

Report 

EU" 

the 

by 

10 

 
 
                                                            
procedures was estimated at EUR 8.4 billion per year in foregone tax relief (due to complex 
compliance  procedures  and  costly  expert  advice),  the  costs  of  reclaim  procedures  and 
opportunity costs (delayed refunds mean that the money cannot be used for other purposes).23 

In  its  2009  Recommendation  on  withholding  tax  relief  procedures,24  the  Commission  asked 
all Member States to implement well-functioning relief-at-source procedures or, where this is 
not possible, to establish quick and standardised refund procedures. 

A  study  accompanying  the  2009  Recommendation  showed  that  simplifying  WHT  relief 
procedures  has  positive  spill-over  effects.  Finland  and  Ireland  confirmed  that,  after 
implementing relief at source, refund processes worked more reliably and efficiently, reduced 
administrative  burdens  and  freed  up  resources  —  both  for  tax  administrations  and  financial 
intermediaries. Similarly, Germany and the Netherlands reported that new electronic systems 
have made their control mechanisms more effective and have cut tax evasion significantly in 
source countries. 

While  improvements  have  been  made,  the  general  status  quo  remains  unsatisfactory  since 
solutions  are  well-known,  and  have  been  successfully  put  in  place  in  some  Member  States. 
Based on the mapping work in the expert group, the figure below proposes a list of nine best 
practices  (in  addition  to  relief  at  source)  and  one  Member  State  particularly  well  placed  to 
share its experience for each of them. 

Quick refund 

Best practice 
‘Quick refund’ procedure in place 
Effectively  provide  refund 
(< 6 months)  

in  a  short  period 

Member State 
Netherlands 

Slovenia (7-30 days) 

Classic reclaim procedure 

Best practice 
Simplify  documentation  requirements  (e.g.  allow 
proof  other  than  a  certificate  of  tax  residence, 
extend the certificate’s validity to more than a year) 
Set up a single point of contact for handling refund 
claims 
Replace claim forms by a single document 
Make claim forms available online 
Allow  completion  of  the  whole  refund  process 
online 
Allow  foreign  financial  institutions  to  handle  the 
WHT procedure (i.e. no need to have a local agent) 

Member State 
Sweden 
additional 
(no 
information  needed,  but  audit 
procedures in place) 

UK (for large businesses) 

Cyprus 
Portugal 

Finland 

Estonia 

Allow  foreign  financial  institutions  to  claim  relief 
on behalf of their clients 

Lithuania 

The  Commission  invites  the  Member  States'  tax  experts  to  assess  and  confirm,  where 
appropriate, the relevance of the nine WHT best practices that were identified in a joint 

23   Source: European Commission's Joint Research Centre. 
24   See Commission Recommendation of 19 October 2009: On withholding tax relief procedures   (http://eur-

lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32009H0784). 

11 

 
 
 
 
                                                            
roadmap. Each Member State would then be expected to make commitments on which best 
practices it wants to implement by 2019. Individual progress could be monitored in the form 
of a scoreboard to be discussed with the Member States. 

The  Commission  proposes  that  this  work  be  taken  forward  by  relevant  tax  working 
groups, while the expert group would be regularly informed of progress and play a supporting 
role in view of the importance of the issue for CMU. 

The  Commission  will  also  work  with  national  tax  experts  on  a  code  of  conduct  on  WHT 
relief principles. In line with the CMU action plan25 and the recent Communication26 the best 
practices identified by the expert group will be the basis to draft a code of conduct on more 
efficient WHT relief/refund principles. 

The  expert  group  will  play  a  supporting  role  and  be  regularly  informed  of  any  relevant 
progress. 

5.  CONCLUSION AND SUMMARY OF PROPOSED ACTIONS 

This collaborative process with the Member States has focused on barriers that are in areas of 
national  competence,  which  can  be  addressed  by  voluntary  action  and  on  which  Member 
States are willing to work together. The barriers assessed were decided on the basis of their 
nature  with  a  view  to  ensuring  that  cumulative  actions  at  national  level  can  trigger  positive 
effects on cross-border investment.  

While these barriers individually impact cross-border investment to a lesser or greater extent 
the  assessment  carried  out  so  far  was  not  underpinned  by  an  economic  assessment  of  the 
impact of each the barriers identified at EU or national level. 

Based on how often they were mentioned in replies to consultations and by the Member States 
in the expert group, the barriers can be divided as follows, from the least (x) to the most often 
reported (xxx). 

Gravity of the barriers (based on 
reporting incidence) 

Marketing requirements 
Administrative arrangements 
Regulatory  fees  for  cross-border 
marketing 
Different 
crowdfunding 
Residence requirements 
Insufficient financial literacy 
Differences in insolvency regimes 
WHT relief procedures 

approaches 

to 

x 

x 

xx 

xx 

xx 

xx 

xxx 

xxx 

xxx 

xxx 
xxx 

25  See  Commission  Action  Plan  of  30  September  2015:  Building  a  Capital  Markets  Union 

(http://ec.europa.eu/finance/capital-markets-union/docs/building-cmu-action-plan_en.pdf).  

26  See  Commission  Communication  of  14  September  2016:  Capital  Markets  Union  —  accelerating  reform 

(http://ec.europa.eu/finance/capital-markets-union/docs/20160913-cmu-accelerating-reform_en.pdf). 

12 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                            
In  view  of  its  commitment  to  accelerate  reforms  to  create  a  CMU,  the  Commission  invites 
Member  States  to  discuss  and  agree  on  the  actions  below,  which  should  become  a  joint 
(Commission/Member States) roadmap on national barriers to capital flows. 

This process does not prevent the Commission from considering possible legislative proposals 
or other tools for addressing the barriers identified. 

In the context of the CMU, the Commission intends to continue consulting all categories of 
interested  parties,  including  industry  and  institutional  stakeholders  (such  as  the  European 
Investment  Bank  and  the  European  Investment  Fund)  to  gather  as  many  informed  views  as 
possible on the existing barriers and possible solutions. The CMU mid-term review will also 
provide input in this regard. 

The Commission, in cooperation with Member States, shall assess the impact of the actions 
agreed in the Roadmap on cross-border investment, in the context of the progress towards the 
accomplishment  of  the  CMU.  The  outcome  of  this  assessment  shall  be  taken  into  account 
when evaluating the need for further action. The Commission does not see the list of actions 
proposed below as exhaustive, and invites Member States in the expert group to identify other 
barriers  in  CMU-relevant  areas.  Possible  topics  include  national  reporting  requirements 
imposed  on  top  of  existing  EU  legislation;  barriers  to  the  online  distribution  of  investment 
funds;  barriers  faced  by  smaller  institutional  investors  which  are  not  eligible  for  a  MiFID 
passport; or barriers related to the distribution of retail financial products. 

13 

 
 
Commission Roadmap of proposed actions 

Topic 

Action 

Actor 

Possible 
timing 

Continue reviewing national rules, in view of 
promoting common understanding and 
regulatory convergence of pre-marketing and 
reverse solicitation 

Member  States  (MS) 
and ESMA 

Q4 2017 

Investment 
funds 

Further map administrative arrangements  

Expert group (EG)  

Q4 2017 

Pension funds 

Residence 
requirements 

Financial 
literacy 

WHT 

Ensure  that  all  fund  notification-related  fees 
are  published  in  a  comprehensive  and  user-
friendly manner on a single website 
Consider setting up a single public domain for 
fee-related  information,  in  the  form  of  a 
comparative website or a central repository 
Identify the drivers in cross-border investment, 
promote  best  practices  in  the  MS  and  raise 
awareness  of  new  opportunities  under  the 
Investment Plan for Europe, involving national 
promotional banks 
from 
Remove 
legislation  and  administrative  practices 
in 
respect of managers residing in the EU, where 
unjustified and disproportionate 
Start  exchanging  best  practices  on  financial 
literacy  programmes,  taking  into  account  the 
cross-border dimension 

requirements 

residence 

Contribute to possible CMU initiatives for the 
development  of 
to 
increase SME knowledge and support them in 
accessing alternative sources of finance 

innovative 

solutions 

Assess  and  confirm  where  appropriate  the 
relevance  of  the  nine  WHT  best  practices 
identified  and  agree  on  a  list  that  could  be 
reflected in a scoreboard 

Discuss  the  way  forward  in  a  tax  working 
group, with a view to each MS committing to a 
list of best practices to improve the status quo 
by 2019 

MS 

Q4 2017 

EG with ESMA 

Q4 2017 

Sub-group of interested 
the 
MS, 
with 
participation  of 
the 
pension fund industry 

Q3 2017 

MS  

Q4 2017 

Sub-group of interested 
MS chaired by Croatia 

Q2 2017 

EG 

2018 

MS tax experts 

Q2 2017 

MS tax experts 

Q3 2017 

Work  with  national  tax  experts  on  a  code  of 
conduct on WHT relief principles 

MS tax experts 

Q4 2017 

14