COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT New EU system for the avoidance of double taxation and prevention of tax abuse in the field of withholding taxes (WHT) Accompanying the document Proposal for a Council Directive on Faster and Safer Relief of Excess Withholding Taxes
Date: 2023-06-19
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: European tax cooperation, digital single market, investment abroad, securities, tax collection, tax law, tax on investment income, tax relief, taxpayer

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  EN 

   EUROPEAN COMMISSION  Brussels, 19.6.2023  SWD(2023) 217 final  COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT  New EU system for the avoidance of double taxation and prevention of tax abuse in the field of withholding taxes (WHT) Accompanying the document Proposal for a Council Directive on Faster and Safer Relief of Excess Withholding Taxes {COM(2023) 324 final} - {SEC(2023) 243 final} - {SWD(2023) 215 final} - {SWD(2023) 216 final}  
 
 
Executive Summary 

Impact assessment on ´New EU system for the avoidance of double taxation and prevention 
of tax abuse in the field of withholding tax procedures (WHT)´ 

A. Need for action 

What is the problem and why is it a problem at EU level? 

With cross-border investments, many EU countries levy withholding taxes when dividends and 
interest on securities are paid to a non-resident investor. However, this tax is generally levied at a 
rate which is higher than the reduced rate the non-resident investor is entitled to, according to the 
relevant tax treaty or domestic legislation.  

To  avoid  double  taxation,  non-resident  investors  would  need  to  submit  a  refund  claim  for  the 
excess tax withheld in the EU country from which the payment is made (the “source country”).  

Current  withholding  tax  refund  procedures  for  dividends  and  interest  payments  to  non-resident 
investors are:  

 

inefficient (leading to costly and lengthy refund procedures) 

  at high risk of tax abuse (leading to revenue losses for Member States).  

These problems take place in the context of an uneven state of digitalisation across EU countries 
and a fragmented patchwork of national withholding tax procedures.  

The  identified  problems  also  stem  from  the  lack  of  accurate  information  held  by  tax 
administrations. This is  needed to  properly  assess  and  apply  reduced  withholding tax rates  and 
effectively recognise abusive practices.  

The current situation discourages cross-border investment within and into the EU and consequently 
leads to a less competitive EU market, hindering the functioning of the Capital Markets Union.  

The risk of procedures being abused ultimately also reduces tax revenues and tax fairness.  

What should be achieved? 

The general objectives  of the initiative are related to  ensuring fair taxation and  reinforcing the 
Capital Markets Union by:  

facilitating cross-border investment, and  

 
  preventing tax abuse. 

The initiative's specific objectives are to: 

  make withholding tax procedures more efficient, and  
  provide Member States with appropriate tools to fight tax abuse. 

These objectives are of equal importance. 

What is the value added of action at the EU level (subsidiarity)? 

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Given  the  existing  fragmentation  across  the  EU,  standardised  procedural  rules  for  withholding 
taxes are needed to ensure the proper functioning of the single market. To reap the full benefits of 
the Capital Markets Union, portfolio investors need withholding tax rules that are applied more 
uniformly across the EU instead of having to comply with different rules in each EU country.  

As the problem arises in a cross-border context only, EU action seems the most effective way to 
achieve swifter withholding tax procedures and to combat tax abusive cases. 

As  soft-law  initiatives  taken  by  the  Commission  (such  as  the  2009  Recommendation  on 
withholding tax relief procedures and the 2017 code of conduct on withholding tax) have not led 
to the desired results, a proposal at EU level with a binding impact is now required to meet the 
objectives. 

B. Solutions 

What are the various options to achieve the objectives?  Is  there a preferred option or 
not? If not, why? 

The objectives could be achieved by 3 policy options: 

-  Option  1  –  a  common  EU  digital  tax  residence  certificate  (eTRC)  +  standardised 

reporting. This consists of: 

o  setting up a standardised EU-wide eTRC – this digital certificate (with a common 
content and format) would be issued/verified online and almost in real time by all EU 
countries. 

o 

introducing a common reporting standard – an EU-wide reporting standard would 
increase  transparency,  as  every  intermediary  throughout  the  financial  chain  would 
report a well-defined set of information to the source EU country. This practice would 
be accompanied by standardised due diligence procedures, liability rules and refund 
forms, to be filed on behalf of clients/taxpayers on automated basis.  

-  Option 2 – a relief-at-source system. This option is option 1 plus the establishment of a 
relief-at-source system that allows for reduced rates under double tax treaties or domestic 
rules to be applied directly at the moment of dividend/interest payment. Under option 2, tax 
administrations would monitor the taxes due after the dividend/interest payment takes place. 

-  Option 3 – a quick refund system within a set time frame or/and a relief-at-source. This 
option  encompasses  option  1  with  the  added  requirement  that  Member  States  applying  a 
refund system should ensure that the reclaim is handled within a pre-defined timeframe, a 
so-called  Quick  refund  system.  Member  States  can  introduce  or  continue  to  implement  a 
relief at source system.  

The preferred policy option is Option 3, because: 

 

 

it would be highly effective in tackling the problems identified in terms of speed, simpler 
processes and more digital procedures.  

it  would  be  safer,  as  it  gives  EU  countries  the  option  of  retaining  advance  control  over 
refund requests.  

 

it provides a way forward that should be politically feasible in all EU countries.  

What are different stakeholders’ views? Who supports which option? 

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There  is  broad  consensus  among  stakeholders  about  the  problems  arising  from  the  different 
withholding tax procedures across EU countries and on the need for EU action to tackle such a 
fragmented and inefficient situation.  

However, there are differences between the main stakeholder groups on possible options to do this: 

Investors and financial intermediaries clearly considered that relief at source would provide the 
best  results such as early  relief for investors and a limited burden on intermediaries. They  also 
acknowledged that a relief at source system would likely need to be complemented by withholding 
tax refund systems, as a back-up. Therefore, they were supportive of an initiative that would also 
aim to standardise the current processes and forms withholding tax refunds.  

Member  States  expressed  support  for  introducing  a  common  EU-wide  digital  tax  residence 
certificate. Regarding the reporting obligation and a standardised procedure:  

(a) Member States where the domestic rate for non-resident investors is lower or the same as the 
bilateral  tax  treaty  rate  would  not  be  directly  impacted  by  a  standardisation  of  withholding  tax 
procedures or reporting. Some of those Member States expressed support for action at an EU level 
as it will improve the position of their investors. 

(b) Member States where the internal withholding tax rate is higher than the respective bilateral 
tax  treaty  rate  broadly  agreed  on  enhancing  transparency  and  standardising  withholding  tax 
procedures,  stressing  the  importance  of  striking  a  balance  between  making  those  procedures 
efficient and keeping the control over processes to prevent tax abuses. 

C. Impacts of the preferred option 

What are the benefits of the preferred option (Option 3 -Relief at Source or Quick Refund 
System-)? 

- 

Investors  would  benefit  from  fewer  foregone  withholding  tax  refunds,  fewer 
administrative costs and fewer reduced opportunity costs. These cost savings are estimated 
to  amount  to  €5.17  billion  annually  for  investors,  including  €409  million  saved  yearly 
because of reduced paperwork for EU investors.  

-  Tax administrations – in the long-term fewer resources might be required to deal with 
withholding tax reclaim procedures, so more resources could be re-allocated to deal with 
higher risk cases. However, the main benefit for tax administrations is the availability of 
the appropriate information to complete withholding tax procedures more promptly and to 
fight tax abuse. 

-  Financial intermediaries – digitalisation and standardisation at EU level would produce 
considerable savings (estimated approximately at €13.5 million per year). The increase in 
investment  should  benefit  financial  intermediaries  and  should  increase  opportunities  to 
improve turnover. 

-  Macro-economic effects – a 0.025% increase in GDP is expected. This option will also 
have  a  positive  impact  on  other  macro-economic  indicators  like  capital,  wages,  and 
employment. 

What are the costs of the preferred option (Option 3 -Relief at Source or Quick Refund 
System-)? 

- 

Investors – no additional costs are anticipated for investors, as they already need to submit 

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documents for withholding tax refunds.  

-  Tax administrations – the main costs are related to the processes needed to issue/verify 
the eTRC, which are estimated to be €4.9-54 million in development costs and €0.97-10.8 
million in recurring costs; and improved reporting systems, which are estimated to incur 
€18.2 million in implementing costs and €3.5 million in recurrent annual costs. 

-  Financial  intermediaries  –  costs  incurred  to  set  up  the  mechanism  to  meet  the 
requirements  under  option  3  amount  to  €75.9  million  in  implementing  costs  and  €13 
million in recurring costs. 

-  Macro-economic  effects  –  given  that  there  will  be  less  instances  of  double  taxation, 
Member States will face a reduction in tax revenues estimated at €2.2 billion (this could 
be offset by the prevention of fraud). 

What are the impacts on SMEs and competitiveness? 

The impact for SMEs may be limited because the initiative is mainly targeted at portfolio investors, 
who generally invest in listed companies.  

Nonetheless,  SMEs  also  act  as  investors  in  securities  (as  portfolio  investors  or  as  investment 
vehicles). In these cases, they would benefit from the current proposal in terms of better access to 
the reduced withholding tax rates they are entitled to, avoiding double taxation. It would allow 
them to benefit from greater liquidity due to swifter refunds, which is an advantage for SMEs. 

Will there be other significant impacts? 

No other significant impacts. However, the initiative is expected to have limited positive social 
impact, since it would ensure fairer taxation; as well as a limited positive environmental impact, 
given the expected reduction in paper-based refund processes. Therefore, the current initiative is 
consistent with the fulfilment of the climate-neutrality objective as requested by the European 
Climate Law. 

Proportionality? 

The preferred option meets the objectives of the initiative in a proportionate manner, in the sense 
that it does not go beyond what is necessary to achieve the objectives and limits the scope to those 
aspects  that  EU  countries  cannot  achieve  on  their  own  (EU-wide  eTRC,  standard  reporting 
framework, standardised due diligence and liability rules and standardised procedures across the 
EU). 

D. Follow up 

When will the policy be reviewed? 

The Commission will examine and evaluate the functioning of this Directive every  five years 
after it enters into force. A report on the evaluation  of the Directive will be submitted to the 
European Parliament and to the Council. 

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