COMMISSION STAFF WORKING DOCUMENT 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

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 19.6.2023  SWD(2023) 216 final  COMMISSION STAFF WORKING DOCUMENT  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) 217 final}  
 
 
Table of contents 

TABLE OF CONTENTS ............................................................................................................................... 1 

1 

2 

INTRODUCTION: POLITICAL AND LEGAL CONTEXT ............................................................... 3 

PROBLEM DEFINITION .................................................................................................................... 4 

3  WHY SHOULD THE EU ACT? ........................................................................................................ 13 

4 

OBJECTIVES: WHAT IS TO BE ACHIEVED? ............................................................................... 14 

5  WHAT ARE THE AVAILABLE POLICY OPTIONS? .................................................................... 16 

6  WHAT ARE THE IMPACTS OF THE POLICY OPTIONS? ........................................................... 26 

7 

8 

9 

HOW DO THE OPTIONS COMPARE? ............................................................................................ 39 

PREFERRED OPTION ...................................................................................................................... 45 

HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED ................................... 47 

ANNEX 1: PROCEDURAL INFORMATION ............................................................................................ 50 

ANNEX 2: STAKEHOLDER CONSULTATION ....................................................................................... 59 

ANNEX 3: WHO IS AFFECTED AND HOW? .......................................................................................... 79 

ANNEX 4: ANALYTICAL METHODS ..................................................................................................... 84 

ANNEX  5:  2021  JRC  STUDY:  QUANTIFYING  THE  COSTS  OF  WITHHOLDING  TAX 

RELIEF PROCEDURES .................................................................................................................... 90 

ANNEX  6:  JRC  STUDY  –  EFFECT  OF  NON-REFUNDABLE  WHT  ON  FPI  AND  MACRO-

ECONOMIC INDICATORS ............................................................................................................ 102 

ANNEX  7:  WITHHOLDING  TAX  SYSTEMS  AND  REPORTING  OBLIGATIONS  IN  THE 

MEMBER STATES .......................................................................................................................... 110 

ANNEX 8: COMPARISON DOMESTIC/CONVENTIONAL WHT RATE OVER DIVIDENDS 

AND INTEREST IN 2020 ................................................................................................................ 115 

ANNEX 9: EXPLANATION OF THE FINANCIAL INDUSTRY VALUE CHAIN ............................... 118 

ANNEX  10:  BIANNUAL  SUMMARY  REPORT  ON  THE  CODE  OF  CONDUCT  FOLLOW-

UP ..................................................................................................................................................... 119 

ANNEX  11:  COMMON  REPORTING  ELEMENTS  AND  REPORTING  OBLIGATION 

FUNCTIONING ............................................................................................................................... 127 

ANNEX  12:  TECHNICAL  SPECIFICATIONS  FOR  SETTING  UP  AN  EU-WIDE  DIGITAL 

TAX RESIDENCE CERTIFICATE ................................................................................................. 129 

1 

 
Term or acronym  Meaning or definition 

Glossary 

AI 

AMLD 

Authorised Intermediary as defined under the TRACE system proposed by the OECD in 2013 

The EU Anti-Money Laundering Framework: 4th and 5th AML Directives 

AMI-SeCo 

Advisory Group on Market Infrastructures for Securities and Collateral 1 

Beneficiary/BO 

The natural person or legal entity that is considered to have the beneficial ownership of the income. The beneficial owner is the one 
that is entitled to the benefits granted under a Double Tax Convention, i.e. a lower withholding tax rate.  
This definition is different from the one in Article 3(6) of the amended Directive 2015/849 on anti-money laundering.  

CIV 

CMU 

CMU AP 

CoC 

Custodian 

DAC2 

Collective investment vehicle 

Capital markets union  

Action Plan on a capital markets union for people and businesses 

Code of Conduct on Withholding Tax 

Financial institution that holds customers' securities for safekeeping them on behalf of the owners 

Council Directive 2014/107/EU of 9 December 2014 providing automatic exchange of financial account information  between tax 
authorities in the EU 

DTT/DTC 

Double Tax Treaty/Double Tax Convention 

ESMA 

EUID 

European Securities and Markets Authority 

European  Unique  Identifier,  code  valid  throughout  the  European  Union,  which  allows  the  rapid  identification  of  companies 
operating in the Member States 

FI/financial intermediary 

Financial intermediary, an operator in the financial markets that is part of the financial chain, such as banks, brokers, custodians, 
clearing houses and payment/withholding agents.  

Financial chain 

A chain of financial intermediaries between the investor/beneficiary and the entity that has issued the security (shares or bonds). 

FISCO 

ISD 

ISIN 

eTRC 

JRC 

KYC 

Fiscal Compliance Experts’ Group 

Investor Self Declaration as defined under the TRACE system proposed by the OECD in 2013 

A unique identification code that is assigned to each new security (financial instrument) as it is produced 

Digital/Electronic Tax Residence Certificate 

Joint Research Centre 

Know your customer rules 

Non-resident investor 

An  investor  that  resides  for  income  tax  purposes  in  another  country  than  the  country  where  the  company  resides  for  corporate 
income tax purposes in which the investor holds its investments 

Portfolio investor 

It entails passive or hands-off ownership of assets as opposed to direct investment, which would involve an active management role 

QRS 

Quick Refund System 

Source Member State 

The Member State that imposes the withholding tax on the payment 

RAS 

Relief at Source 

TRACE IP 

Treaty Relief and Compliance Enhancement Implementation Package 

WHT 

WHT agent 

Withholding taxes 

Withholding tax agent; the entity that will have the obligation under national provisions to withhold tax on the payment (dividend, 
interest or royalty) 

2 

 
 
 
 
1  Introduction: Political and legal context 

In the EU, investors are generally obliged to pay tax on the income they receive from the 
holding of securities (namely dividends on holdings of equities and interest on holdings 
of bonds) twice. First, taxes could be due in the country of the issuer of the securities (the 
source country) in the form of a tax withheld from the gross securities income, called a 
withholding  tax  (WHT  (2));  and  then  in  the  country  of  residence  of  the  investor  (the 
residence  country)  in  the  form  of  an  income  tax.  To  avoid  this  double  taxation,  many 
countries  have  agreed  to  share  taxing  rights  between  the  source  and  the  residence 
countries by signing double tax treaties (DTTs). Under the terms of these treaties, non-
resident  investors  may  be  entitled  to  a  lower  rate  of  WHT  or  to  an  exemption  in  the 
source country (3). 

This reduction or exemption of WHT may be granted in two ways. Either the reduced tax 
rate or exemption is applied directly at the moment the dividend/interest is paid (relief at 
source), or the excess tax withheld is refunded on the basis of a reclaim by the investor 
(refund  procedure).  However,  the  WHT  refund  procedures (4)  that  allow  non-resident 
investors  to  benefit  from  tax  treaty  benefits (5)  are  often  complicated  and  vary 
considerably among Member States. As a result, investors incur high costs, receive late 
refunds or even forego the right to  refund  altogether. This translates into provisional or 
permanent double taxation since investors are not able to enjoy the tax treaty benefits to 
which  they  are  entitled  to.  This  discourages  cross-border  investment,  hinders  the 
functioning of the Single Market, and represents a barrier to the free movement of capital 
– hence being an obstacle to the building of the Capital Markets Union (CMU). 

On  the  other  hand,  there  has  been  an  abusive  utilization  of WHT  refund  procedures  as 
recently  demonstrated  by  the  ‘Cum/Ex  scandal’ (6),  where  WHT  refunds  have  been 
obtained  based  on  multiple  WHT  requests  arising  from  short  selling  practices.  In 
September  2020,  the  European  Securities  and  Markets  Authority  (ESMA)  released  a 
‘Final  report  On  Cum/Ex,  Cum/Cum  and  withholding  tax  reclaim  schemes’ (7)  which 
concluded  that  a  legislative  and  supervisory  response  should  be  sought  within  the 
boundaries  of  the  tax  legislative  and  supervisory  framework.  The  fact  that  these 
fraudulent schemes have strongly affected several Member States justifies more than ever 
the need for action. 

The European Commission has been analysing and trying to solve the inefficiencies and 
fraud  risks  associated  with  WHT  procedures  since  the  early  2000’s.  The  “Giovannini 
Group (8)”, which was set up to advise the Commission on issues related to EU financial 
integration  and  the  efficiency  of  financial  markets,  published  in  2001  and  2003  two 
reports (9),  which  identified  WHT  procedures  as  a  barrier  to  efficient  cross-border 
investments in securities. 

Subsequently,  the  Fiscal  Compliance  Experts’  Group  (FISCO) (10)  produced  a  fact-
finding study on fiscal  compliance procedures  related to  clearing and settlement  within 
the EU in 2006 and a report on fiscal compliance barriers related to post-trading in the 
EU  in  2007 (11),  in  which  existing  WHT  procedures  were  analysed  and  improvements 
in  2009  a 
suggested.  Drawing  on 
Recommendation (12)  to  the  Member  States  on  the  simplification  of  WHT  procedures. 
The  Recommendation  suggested  ways  to  make  WHT  procedures  simpler  and  more 
efficient, for the benefit of all stakeholders involved. In 2017, the Commission published 
a  Code  of  Conduct  on  WHT (13),  which  called  for  voluntary  commitment  by  Member 
States. The Code of Conduct compiles practical approaches to improve the efficiency of 

the  Commission  put  forward 

this  work, 

3 

 
 
WHT  procedures  in  various  areas  (notably  entitlement,  relief  at  source,  digitalisation, 
refund period, documentation requirements and forms). 

At international level, the OECD Treaty Relief and Compliance Enhancement (TRACE) 
initiative  aimed  to  address  the  inefficiency  of  WHT  procedures.  The  TRACE 
Implementation  Package  (TRACE  IP) (14),  approved  in  February  2013,  provided  for  a 
framework to set up an authorised intermediary system whereby WHT agents registered 
as authorised intermediaries  are  allowed to  claim exemptions  or reduced  rates of WHT 
on  a  pooled  basis  on  behalf  of  their  customers.  This  initiative  was  inspired  by  the 
‘Qualified  Intermediary’  system  utilized  in  the  US (15).  In  the  EU,  the  TRACE  IP  has 
been implemented by Finland since 2021. 

Even  though  these  numerous  actions  at  EU  and  international  level  resulted  in  some 
improvements, cumbersome WHT procedures remain a barrier to a well-functioning EU 
capital market and are prone to fraud risk. 

In her political guidelines, President Von der Leyen identified fair taxation and the fight 
against  tax  fraud  as  key  foundations  of  an  economy  that  works  for  the  people (16).  She 
also  stressed  the  importance  of  completing  the  CMU,  notably  to  support  economic 
growth and finance the green and digital transitions. 

In  the  Action  Plan  for  fair  and  simple  taxation  supporting  the  recovery  strategy (17), 
adopted  in  July  2020,  the  Commission  announced  an  initiative  in  the  area  of  WHT 
procedures  with  a  view  to  lower  significantly  tax  compliance  costs  for  cross-border 
investors  while,  at  the  same  time,  preventing  tax  abuse.  In  particular,  Action  8  of  the 
Action  Plan  states  that  the  Commission  will  propose  a  legislative  initiative  for 
introducing  a  common,  standardised,  EU-wide  system  for  withholding  tax  relief  at 
source. 

In  its  Action  Plan  on  a  capital  markets  union  for  people  and  businesses  adopted  in 
September 2020 (18), the Commission confirmed its intention to put forward a legislative 
initiative  in  the  area  of  WHT  procedures  by  establishing  a  common,  standardised,  EU-
wide system for withholding tax relief at source. This follows the recommendation from 
the  High-Level  Forum  (HLF)  on  CMU  to  adopt  a  legislative  proposal  introducing  a 
standardised  relief  at  source  system  and  harmonising  definitions/processes  related  to 
WHT procedures (19). 

The  European  Parliament  also  echoed  the  necessity  to  improve  WHT  procedures  in  its 
non-legislative resolution on a European Withholding Tax Framework (20) adopted on 10 
March  2022.  This  resolution  recommended  putting  an  end  to  profit-shifting  practices, 
increasing efforts to combat dividend arbitrage (21) and removing barriers to cross-border 
investments in the Single Market. 

In  light  of  the  above,  this  initiative  aims  at  making  WHT  procedures  in  the  EU  more 
efficient and less prone to fraud in order to ensure fair taxation and support cross-border 
investment,  thus  contributing  to  building  the  CMU.  Since  intra-group  passive  income 
payments  (dividends  and  interests)  are  already  covered  by  the  exemption  at  source 
granted under the Parent-Subsidiary Directive (22) and the Interest-Royalties Directive (23), 
the current initiative focuses on  simplifying WHT procedures for both EU and non-EU 
portfolio investors  (hereafter: investors) investing in  EU securities markets  through EU 
or non-EU located financial intermediaries. 

2  Problem definition 

4 

 
 
2.1  What are the problems? 

Many countries around the world, including a vast majority of EU Member States, apply 
WHT  on  cross-border  securities’  income  (i.e.  dividends  and  interest).  This  means  that 
payments received as remuneration of a cross-border investment are subject to a WHT in 
the  country  of  the  investment  (the  “source  country”).  The  tax  is  withheld  either  by  the 
issuer of the securities or by a financial intermediary that is  involved in the payment of 
the income, also known as the withholding tax agent (WHT agent). The tax withheld is 
remitted 
the 
the 
investor/taxpayer. 

the  source  country  on  behalf  of 

tax  administration  of 

to 

However, the WHT is generally levied at a rate which is higher than the reduced rate the 
non-resident investor is entitled to according to the applicable DTT. The reduced WHT 
rate could also be provided unilaterally by the domestic legislation of the source country 
(e.g. exemptions for pension funds or charities). 

To  avoid  double  taxation,  a  non-resident  investor  who  would  have  been  subject  to  a 
WHT  rate  that  is  higher  that  the  DTT  rate  would  submit  ex-post  a  refund  claim  of  the 
excess tax withheld in the investment country. Often the non-resident invests by means 
of a chain of financial intermediaries.  

Figure 1: Simplified illustration of the refund procedure 
Source: DG TAXUD 

Note:  The  maximum  time  period  to  claim  the  refund  may  vary  depending  on  the  domestic  law  of  each 
country 

The  standard  WHT  refund  procedure  as  depicted  in  Figure  1  is  not  the  only  existing 
system.  Overall,  one  can  distinguish  between  three  main  WHT  procedure  systems  to 
grant  non-residents’  access  to  tax  treaty  benefits  that  can  coexist  in  the  same  Member 
State and are applicable depending on the risk strategy pursued by this Member State: (i) 
relief at source (dividend/interest payments are made after applying reduced WHT rates 
as defined in DTTs or taking into account the applicable exemptions); (ii) quick refund 
(income is initially paid after applying the maximum WHT rate, and any tax withheld in 
excess is then refunded within a short period of time); and (iii) standard refund (income 
is paid after applying the maximum WHT rate and the refund of tax withheld in excess 

5 

 
 
takes  place  after  the  tax  withheld  has  been  already  transferred  to  the  source  tax 
administration). 

Member States will always need to have a standard refund procedure in place; for some 
Member States it is the only way for taxpayers to obtain their refund, for other Member 
States it acts as the final resort to obtain a refund. In case of the latter situation Member 
States  provide  taxpayers  with  the  opportunity  to  either  claim  relief  under  the  relief  at 
source and/or quick refund. Member States may also restrict certain taxpayers from using 
the faster procedures if these taxpayers are considered to present an higher risk of abuse.  
Annex 7 describes in some detail the system(s) existing in each Member State. 

An important element is that, in some Member States, there is no difference between the 
domestic  WHT  rate  for  cross-border  dividend  or  interest  payments  set  out  in  national 
rules and the WHT rates laid down in DTTs. Hence, in those cases, there is no need to 
ask  for  any  refund.  However,  currently,  thirteen  Member  States  have  a  domestic  WHT 
rate  for  cross-border  dividend  payments  that  is  considerably  higher  than  the  WHT  rate 
stated  in  DTTs:  Austria,  Belgium,  Denmark,  Finland,  France,  Germany,  Ireland,  Italy, 
Poland, Portugal, Slovenia, Spain  and Sweden (see Annex 8 for a  comparison between 
domestic  and  conventional  rates).  When  referring  to  interest  payments,  the  number  of 
Member States with a higher domestic rate compared to their conventional rate, is lower 
as the majority of countries exempt cross-border interest payments under their domestic 
rules (24).  Based  on  targeted  consultations  with  the  financial  sector  and  some  Member 
States,  the  total  amount  of  WHT  levied  over  interest  payments  has  a  lower  weight  in 
quantitative terms compared to dividend payments. Similarly, in the 2021 WHT survey, 
Member  States  reported  that  their  interest  payment  WHT  refunds  were  substantially 
lower than their dividend income WHT refunds.  
In  many  instances,  the  current  WHT  procedures  in  place  in  the  EU  have  proven  to  be 
inefficient and prone to tax abuse. 

2.1.1 

Inefficient: lengthy and costly cross-border WHT procedures 

Current procedures are cumbersome and costly for investors, financial intermediaries and 
tax administrations due to a variety of factors, which are further explained in the section 
on “drivers”. 

In particular, there are highly divergent WHT procedures applied in each Member State 
with more than 450 different forms to be filled in by investors according to information 
provided  by  the  industry (25).  In  addition,  most  of  these  forms  are  only  available  in 
national languages. This results in high administrative and financial compliance costs and 
in  long  and  heavy  processes  (e.g.  to  have  the  form  translated)  for  both  taxpayers  and 
financial intermediaries in charge of providing reclaim services to their clients. 

In addition, this may also result in high compliance costs for source tax administrations 
that have to handle various tax residence certificates (‘TRC’) -in format and content- and 
for  resident  tax  administration  of  its  investors  (resident  in  that  Member  State)  to  assist 
them in trying to claim their refunds from another Member State´s tax administration. 

In  particular,  the  lack  of  a  standardised  and  digitalised  system  prevents  tax 
administrations  from  creating  cost  efficiencies  and  automating  certain  processes. 
Nowadays a majority of Member States is still fully or partially relying on paper-based 
WHT  refund  procedures.  This  issue  was  confirmed  by  most  tax  administrations  during 
targeted consultations. 

According  to  the  public  consultation,  89%  of  all  valid  respondents  (1495  of  1679) 
strongly agree that the current functioning of WHT refund procedures in Member States 

6 

 
hinders  cross-border  investment  in  the  EU  securities  market.  The  following  problems 
with  existing  WHT  refund  procedures  were  identified  as  most  relevant:  lack  of 
digitalisation  and  user-friendly  forms  (more  than  88%  of  respondents  -1441-),  lengthy 
WHT  refund  procedures  (more  than  89%  of  replies  -1451-)  and  costly  WHT  refund 
procedures in monetary terms (more than 80% of the replies -1283-). For example, in one 
Member  State,  a  certificate  issued  by  financial  intermediaries,  which  costs  EUR  20  to 
EUR  50  depending  on  the  bank,  is  needed  for  each  dividend  payment;  in  another 
Member State an ownership certificate from the custodian bank is required (around EUR 
70-100). This makes many small refunds unprofitable (26). 

Retail  investors  are  particularly  impacted.  In  a  recent  survey(27),  close  to  70%  of  retail 
investors  who  would  be  eligible  to  a  reduced  WHT  rate  did  not  claim  it,  citing  as  the 
main  reason:  too  complicated  procedures  (33%),  lengthy  /  cumbersome  procedures 
(26%),  lack  of  knowledge  (21%),  too  costly  (17%).  As  regards  retail  investors  who 
reclaimed the withholding tax by themselves, 77% found the process “difficult” to “very 
difficult”, and in fact nearly half of them (46%) failed to recover the excess withholding 
tax (34% of them still failed when reclaiming WHT through a bank). As a result, 31% of 
the  retail  investors  surveyed  decided  to  sell  their  foreign  EU  stocks.  This  clearly  goes 
against the objective of the CMU.  

The  above-mentioned  issues  may  result  in  unnecessarily  long  delays  before  refund 
requests  are  processed  and  paid  out.  The  time  to  obtain  a  refund  may  vary  from  a  few 
weeks in some Member States to many years in others; however, according to the public 
consultation  replies,  for  56%  (31  of  55)  of  companies/business  organisations  and 
business associations, the period of time to receive a refund was longer than 2 years. This 
leads  to  a  lengthy  provisional  excess  taxation  or  in  some  cases  a  permanent  double 
taxation.  As  evidenced  above,  this  discourages  cross-border  investments  and  leads  to  a 
situation where non-resident investors give up on their right to claim for the tax refund 
they  are  entitled  to,  due  to  the  complexity  of  the  procedures  and  the  high  compliance 
costs. 

In January 2016, the overall cost of WHT refund procedures within the EU was estimated 
at EUR 8.4 billion per year (28) by the Joint Research Centre (JRC). The estimate has been 
updated in 2022 amounting to EUR 6.62 billion per year (29). Further details on the WHT 
cost estimations are detailed in chapter 5 (baseline scenario). 

2.1.2  Risk of tax fraud, evasion and avoidance 

Some  Member  States  have  experienced  large-scale  tax  abuse  schemes  known  as 
‘Cum/Ex’ and ‘Cum/Cum’. 

‘Cum/Ex’ schemes work as fraudulent multiple reclaim schemes when entitled to a single 
reclaim.  Short  selling  practice  around  the  distribution  day  creates  a  confusion  between 
the economic and legal  owner of the securities, which enables both parties to claim tax 
refunds  that  exceed  the  amount  that  was  initially  withheld  by  the  WHT  agent.  Lack  of 
transparency  and  uneven  digitalisation  gave  rise  to  the  issuance  of  refund  certificates 
without  due  control  of  the  traceability  of  the  payment  by  tax  administrations.  An 
estimation  made  by  the  journalist  network  Correctiv,  working  together  with  the 
University of Mannheim,  estimated the losses  from  Cum/Ex at  EUR  9.1 billion for the 
years 2000-2020. 

‘Cum/Cum’ schemes are dividend arbitrage patterns aimed to minimise or avoid paying 
taxes on dividends. Those strategies are often structured in a way that an investor lends 
or sells its shares to a borrower/buyer domiciled in a country that has a lower dividend 

7 

 
tax rate, so as to minimise the taxes paid on such dividend. The borrower/buyer receives 
the  dividend  paid  out  by  the  issuer  of  the  share  and  then  returns  it  to  the  lender/seller, 
minus  the  dividend  tax  and  a  percentage  –  or  ‘cut’  –  negotiated  between  the  two 
counterparties. 

The cost for Member States of Cum/Cum trading has, according to the same sources of 
Correctiv and University of Mannheim, been estimated at EUR 141 billion for the years 
2000-2020(30). 

2.2  What are the problem drivers? 

In  order  to  accurately  understand  the  current  situation  and  actual  problems  involved  in 
WHT procedures, we have to look at it in a broader context, in particular, the functioning 
of financial markets (31).  

In a cross-border context, chains of financial intermediaries are generally longer than in a 
domestic scenario, which makes the process of transferring the information relevant for 
WHT  or  other  purposes  such  as,  for  example,  the  exercise  of  ownership  rights,  more 
complex and costly (32). 

Long  financial  chains  make  it  difficult  for  issuers  to  know  the  identity  of  the  ultimate 
investor (33) – while they know instead the financial intermediary’s identity. Similarly, tax 
administrations struggle to gather sufficient information on the beneficial owner/ultimate 
investor to be able to properly apply the benefits granted under the DTTs. 

The  current  initiative  attempts  to  introduce  transparency  in  the  financial  chain  by 
providing tax authorities with sufficient information in time to ascertain the entitlements 
granted under the tax treaty and avoid as a consequence a prolonged or permanent double 
taxation. 

The  main  drivers  behind  the  core  problems  of  inefficiency  and  tax  abuse  are  the 
following. 

2.2.1  Divergent WHT procedures across Member States 

Feedback  given  by  Member  States (34)  demonstrates 
that  WHT  collection  and 
relief/refund  procedures  vary  considerably  among  them.  Besides  what  has  been 
mentioned above regarding different forms and procedures in place, the main differences 
in such procedures for cross-border dividends and interests are: 

1.  Reporting obligations associated with WHT collection (35): in several Member 
States, domestic reporting obligations must be met in connection with taxable 
income  payments.  Differences  exist  in  terms  of  (i)  the  content  of  reporting, 
(ii)  the  entity  required  to  comply  with  the  reporting  obligations,  (iii)  the 
person  to  whom  the  reports  must  be  issued  to,  and  (iv)  the  frequency  and 
format of reporting. In most cases, the information to be reported relates to the 
gross  income,  the  tax  withheld,  the  net  income,  and  the  recipient  of  the 
income.  Although  DAC2 (36)  has  streamlined  the  procedures  to  report 
information  for  cross-border  passive  income,  it  does  not  encompass  all 
reporting items needed under WHT procedures. 

2.  Documentation requirements for obtaining tax treaty benefits (reduced WHT 
rates):  generally  beneficial  owners  must  provide  evidence  to  prove  that  they 
are  entitled  to  WHT  relief/refund  under  domestic  law  or  DTTs.  The  type  of 
documentation to  be provided differs from  one  Member State to  another. At 

8 

 
one end of the spectrum, benefits can be provided on the basis of free-format 
information about the beneficial owners or on the basis of documentation held 
by the intermediary under Know Your Customer rules (KYC) (37). At the other 
end of the spectrum, reduced rate can be granted only on the basis of official 
forms or certificates stamped by the local authorities of the investor’s country 
of residence or by the local tax authorities of the country of investment. 

3.  Format  and  period  of  validity  of  tax  residence  certificates:  tax  residence 
certificates  are  issued  with  different  content  and  formats  across  Member 
States. In addition, in some countries, new forms must be used for each claim, 
while  in  others,  certificates  remain  valid  for  one  year  or  until  they  are 
revoked.  

4.  Time limitations to refund claims: the period within which WHT refunds must 
be claimed varies among Member States and even within the same Member 
State, depending on the treaty under which the refund is claimed. 

5.  Tax authority arrangements  for processing refund claims: in some countries, 
the  processing  of  all  refund  claims  is  centralised  in  one  office  of  the  tax 
authorities,  while  in  other  Member  States,  refund  claims  must  be  filed  with 
the local tax office responsible for the WHT agent. 

6.  Due  diligence  procedures:  Although  financial  intermediaries  would  already 
need  to  check  customer  information  under  AML/KYC  and  DAC2  rules, 
current reclaim procedures do not adequately leverage these rules as there are 
divergent  customer  due  diligence  procedures  in  place  in  the  EU  for  WHT 
procedure purposes.  

2.2.2  Lack and /or uneven state of digitalisation of WHT procedures 

The lack of digitalisation and/or uneven state of digitalisation of WHT procedures across 
Member  States  causes  complexity  and  opacity  for  all  WHT-related  actors  (tax 
authorities,  investors,  intermediaries,  etc.).  Indeed,  the  use  of  paper-based  procedures 
considerably slows down the reimbursement process, making it burdensome and prone to 
fraud. 

The survey of the Advisory Group on Market Infrastructures for Securities and Collateral 
(AMI-SeCo) (38)  highlights  that  barriers  to  digital  WHT  procedures  exist  mainly  due  to 
requirements  for  physical  paper  documents,  paper-based  processes,  and  wet  ink 
signatures. National tax authorities commonly require paper documents and original wet 
ink  signatures.  Although  solutions  for  digital  alternatives  exist  and  are  allowed  by  the 
legislator, they are not always accepted by the tax authorities, they are complementary to 
physical documents, or they can only be submitted for a limited range of procedures. 

2.2.3 

Insufficient  information  for  tax  administrations  to  properly  apply  tax  treaty 
benefits to entitled persons 

Based  on  targeted  consultations  of  tax  administrations  and  of  relevant  stakeholders (39), 
the problems identified (i.e. inefficiencies and fraud) are largely linked to: 

  Difficulties  to  identify  the  beneficial  owner  of  the  payment  (the  one  that  is 
eligible  for  the  benefits  granted  under  a  DTT  or  specific  national  rules)  by  the 
WHT  agent/securities  issuer.  The  lack  of  transparency  in  the  financial  chain  is 
making  it  difficult  for  the  company  in  which  a  non-resident  taxpayer  invests  to 

9 

 
identify  its  actual  shareholders.  As  a  consequence,  the  company  of  the 
investment/WHT  agent  is  unable  to  provide  to  its  tax  administration  accurate 
information on the identification of the final investor on behalf of who the tax has 
been withheld. 
Relevant  information  regarding  the  investor’s  identity,  tax  residence,  etc.  is 
collected  and  verified  when  the  account  is  being  opened.  Since  the  client’s 
identity  can  have  significant  commercial  sensitivity,  intermediaries  often  do  not 
share  this  information  with  competitors  (i.e.  other  intermediaries)  who  also  are 
involved in the payment chain. 

  Cross-checking  that  the  amount  of  tax  withheld  was  effectively  paid  to  the  tax 
administration  on  behalf  of  that  beneficial  owner.  One  of  the  main  hurdles 
encountered by tax administrations when processing a refund claim from a non-
resident investor is verifying that the tax withheld (up to 4 years ago) was done 
on  behalf  of  the  refund  claimant  due  to  identification  difficulties.  When  the 
security issuer levies a WHT over the gross dividend, a tax reporting form is filed 
to  its  residence  tax  administration.  The  problem  is  that  the  person  identified  in 
that reporting form is the intermediary, not the ultimate investor. For this reason, 
the  corresponding 
to  all 
intermediaries in the financial chain to ensure the transactional traceability of the 
operation.  

tax  administration  has 

information 

to  request 

2.2.4  No clear/harmonised liability allocation for intermediaries 

There are different actors in charge of withholding the tax at source, which is relevant for 
the allocation of the liability to pay the tax in case of underreporting (less tax withheld 
than  required).  In  a  large  number  of  Member  States,  the  responsibility  for  withholding 
the tax lies exclusively with the issuer of the securities. In other Member States, this is 
the responsibility of the intermediaries involved in the payment of the income, whereby a 
distinction can be made between Member States allowing foreign intermediaries to act as 
WHT tax agents and those where only locally established intermediaries can assume such 
responsibilities. 

Such fragmentation in the rules regarding the allocation of liabilities leads to uncertainty 
for the WHT agents and other financial actors who may refrain from acting in the interest 
of the investors under the threat  of bearing  responsibility for any  underreporting  of tax 
and, ultimately, being held liable to pay the outstanding tax debt. 

Consequences 

A  direct  consequence  of  the  current  inefficient  and  costly  WHT  procedures  is  that 
portfolio investors are struggling to benefit from the tax treaty benefits to which they are 
normally entitled, which leads at least to temporary double taxation.  

The  risk  of  double  taxation  and  high  costs  involved  in  WHT  procedures  discourages 
cross-border  investments  in  the  European  market  (in  fact,  respondents  to  the  public 
consultation  who  do  not  invest  outside  their  home  country  indicated  as  main  reasons 
wanting to avoid double taxation and inefficient WHT procedures). It is thus a barrier to 
the  establishment  of  a  well-functioning  capital  market  union,  and  results  in  an 
uncompetitive EU market. 

According to the public consultation, the consequence to which citizens give the highest 
importance  in  terms  of  the  problems  encountered  is  the  permanent  double  taxation 
suffered  (91.29 %  -1425-)  followed  by  giving  up  the  right  of  submitting  WHT  refund 

10 

 
 
claims  (74.76 %  -1164-).  As  regards  companies/business  organisations  and  business 
associations,  the  two  consequences  they  ranked  most  often  as  of  ‘high  importance’  are 
the delays in effectively receiving the WHT refund (cited by 90% of companies/business 
organizations and associations), and the high compliance costs associated with the WHT 
refund process (cited by 84% of companies/business organizations and associations). 

Another consequence of inefficient WHT procedures in the EU is the loss of tax revenues 
when  tax  fraud  is  perpetrated  in  the  absence  of  a  proper  monitoring  of  the  refund  and 
relief  procedures.  Public  revenues  are  also  indirectly  affected  in  the  form  of  a  lower 
taxable base when less investment is attracted into the EU (40). 

The  dissatisfaction  among  retail  investors  about  the  functioning  of  existing  tax  rules  is 
evidenced by the numerous responses and high proportion of individual investors to the 
public  consultation  (in  total  1682),  which  is  unusual  in  direct  taxation  matters:  EU 
citizens accounted for more than 90 % of responses (1547 out of 1682).  

Problem tree 

The  problem  tree  comprises  the  above-mentioned  problems  and  consequences  that  this 
initiative aims at tackling. The figure below also presents the main drivers and provides 
for additional context elements that have been developed: 

Figure 2: Problem tree 
Source: DG TAXUD 

11 

 
 
Affected stakeholders 

The problems and drivers stated above and their consequences affect investors, financial 
intermediaries  (custodians,  banks,  collective  investment  vehicles  and  other  financial 
players), tax administrations and European companies as ultimate recipients of the capital 
potentially invested by non-resident investors. 

Both  retail  and  professional  non-resident  investors  are  directly  affected  by  costly, 
lengthy  and  burdensome  WHT  procedures.  In  particular,  non-resident  portfolio 
investors (41)  struggle  with  recovering  the  excessive  tax  withheld.  Individual  investors 
seem  to  be  particularly  impacted,  since  51%  (651)  of  EU  citizens  responding  to  the 
public consultation were not able to get a refund on the tax withheld, whereas 76% (41) 
of companies/business organisations and business associations responding to that public 
consultation were able to receive a refund in some cases. 

Member  States,  and  more  specifically  their  tax  administrations,  are  also  affected  by 
these complex procedures as mentioned before: firstly, because of the revenue loss they 
suffer  due  to  fraud  perpetrated  and  to  less  inward  investment;  secondly,  because  they 
have to devote resources and time to verify the refund submissions, often without proper 
investigative tools. 

Other  affected  parties  are  the  financial  intermediaries  involved  in  the  procedures.  As 
they provide services to their clients, they might have the right to ask for the refund on 
their  client’s  behalf  or  are  even  entitled  to  the  reduced  WHT  rates  themselves  as 
investors.  Therefore,  financial  intermediaries  face  the  same  hurdles  to  recover  the  tax 
withheld  and  may  cease  to  offer  the  WHT  reclaim  services  to  their  clients  given  the 
massive  compliance  costs,  the  large  range  of  different  procedures  involved  and  the 
potential liabilities associated with offering this service to their clients. 

Ultimately,  European  companies  are  less  attractive  to  non-resident  investors,  which 
potentially  hampers  their  capacity  to  invest  and  ultimately  their  growth  prospects (42). 
They cannot exploit fully the advantages of the Single Market by tapping into the retail 
investor  base  in  other  Member  States,  thus  segmenting  unnecessarily  the  shareholder 
base over national boundaries.  

2.3  How likely is the problem to persist? 

Some  Member  States  have  put  unilateral  measures  in  place,  including  developing  and 
introducing digital tools, to address the problem through either a relief at source, refund 
system, or a combination of both (43). 

Without any EU action in the WHT field, the fragmentation of regulations and practices 
across Member States will grow and, therefore, greater inconsistency will continue in the 
EU  with  increasing  negative  consequences  for  companies,  investors  and  financial 
intermediaries. 

Indeed,  in  case  of  divergent  measures  still  proliferating  to  address  existing  hurdles 
regarding WHT reclaim systems, the problem of compliance and administrative costs is 
likely  to  remain.  For  example,  for  a  financial  intermediary  with  clients  operating  in 
various  Member  States,  the  operational  and  compliance  costs  associated  with  diverse 
reclaim systems would be higher than having to face one standard refund procedure, or 
several procedures with common forms and/or requirements to fulfil in order to request 
the money on behalf of its clients. Chapter 5 gives more information on the impact of the 
baseline scenario (assuming there is no EU intervention). 

12 

 
In  the  absence  of  EU  intervention,  tax  fraud  related  to  WHT  will  continue  to  exist, 
especially in Member States that have not introduced unilateral measures to address the 
flaws in the monitoring of WHT reclaim systems. 

Several  actions  have  been  taken  by  the  EU  over  recent  years  to  tackle  tax  abuse  in 
general,  including  the  Anti-Tax  Avoidance  Directive  (ATAD),  the  Council  Directive 
(EU)  2018/822  amending  the  Directive  on  Administrative  Cooperation  in  the  field  of 
(direct)  taxation  (DAC6)  and  the  recently  proposed  Directive  laying  down  rules  to 
prevent the misuse of shell entities for tax purposes (UNSHELL). Nevertheless, none of 
those initiatives address the specific problem of double refund abuse.  

3  Why should the EU act? 

3.1  Legal basis 

Article 115 of the Treaty on the Functioning of the European Union (TFEU) constitutes 
the  legal  base  for  legislative  initiatives  in  the  field  of  taxation.  Although  no  explicit 
reference  to  direct  taxation  is  made,  Article  115  refers  to  issuing  directives  for  the 
approximation  of  national  laws  as  those  that  directly  affect  the  establishment  or 
functioning of the internal market. It follows that, under Article 115 TFEU, directives are 
the appropriate legal instrument for the Union in this field. Based on Article 288 TFEU, 
directives shall be binding as to the result to be achieved upon Member States but leave 
the choice of form and methods to the national authorities. 

This initiative aims to ensure the smooth functioning of the Internal Market by improving 
WHT procedures in the field of direct taxation, making them more effective and efficient 
and addressing existing tax abuse. 

3.2  Subsidiarity: Necessity of EU action 

As shown in the targeted consultation of Member States, some of them have introduced 
provisions attempting, in different ways and by different means, to address the problems 
of WHT procedures. For instance, Finland has introduced in 2021 a TRACE-like system 
(44) for dividend payments from listed companies. It relies on a relief at source scheme as 
primary  system.  Other  countries  like  Germany  have  approved  a  tax  reform  on  WHT 
procedures  for  non-residents  that  relies  on  a  standard  refund  procedure  with  several 
extensive  conditions  to  be  fulfilled  in  terms  of  documentation  and  other  formal 
requirements. 

Keeping  an  increasingly  fragmented  framework  of  WHT  procedures  across  the  EU 
would  lead  to  higher  compliance  costs  for  all  actors  such  as  financial  intermediaries, 
investors  and  Member  States  tax  authorities.  The  prevailing  cross-border  nature  of  the 
problem  at  stake  determines  the  necessity  of  EU  action  in  order  to  simplify 
administrative  procedures  and  reduce  compliance  costs.  Otherwise,  fragmentation  of 
national  rules  on  WHT  procedures  across  Member  States  would  make  the  effective 
functioning  of  refund  or  relief  procedures  more  difficult  to  achieve  for  cross-border 
operations,  hindering  the  proper  functioning  of  the  internal  market.  Therefore,  an  EU 
action  is  required  to  level  the  playing  field  for  national  and  foreign  investors  and  for 
domestic and external intermediaries alike. 

As mentioned in section 2.1, a number of Member States have domestic WHT rates that 
do not exceed the rates established in their DTTs (45). While those Member States do not 
need to engage in WHT refund procedures, their resident taxpayers investing or wishing 

13 

 
 
to invest abroad are nevertheless exposed to the described problems and may refrain from 
doing so because of burdensome withholding tax procedures. 

Furthermore, based on their current  national  legislations, some Member States may not 
be in a position to trace full details / information on passive income payments from cross-
border  investment  throughout  the  financial  chain.  This  is  typically  relevant  for  the 
taxation of the operations undertaken by institutional investors or with several layers of 
intermediaries. To address this, a common framework providing a minimum standardised 
procedure for WHT, introducing transparency within the financial chain, is needed at EU 
level. 

Despite  the  non-binding  actions  already  undertaken  at  national,  international  and 
European  level,  the  issue  persists.  In  particular,  the  most  recent  soft  law  measure 
implemented  at  Commission  level  was  the  approval  of  a  Code  of  Conduct  in  2017. 
Although the implementation of the Code of Conduct helped in raising awareness on the 
need  to  simplify  WHT  procedures  for  compliant  non-resident  beneficiaries  (the 
investors),  it  was  not  in  itself  sufficient  to  fully  tackle  the  existing  problems  (see  the 
biannual summary report (46)). Therefore, further EU action is needed at legislative level, 
as neither national measures nor multilateral soft measures have been effective so far.  

Furthermore, the initiative aims to respond to the recommendations provided by ESMA 
in the above mentioned ‘Final report On Cum/Ex, Cum/Cum and withholding tax reclaim 
schemes’ which concluded that specific action at EU level in the field of taxation should 
be provided. 

3.3  Subsidiarity: Added value of EU action 

Given  that  there  is  a  need  to  act  in  response  to  the  problems  set  out  in  chapter  2,  it  is 
preferable to avoid a patchwork of refunding requirements, unilaterally implemented by 
some or all Member States using different procedures. 

Solutions  could  range  from  improving  existing  systems  to  setting  up  an  EU-wide 
standardised reclaim regime. The solution sought must strike a balance between making 
WHT procedures more efficient, less burdensome, and less costly for investors, financial 
intermediaries and tax administrations, while at the same time improving the prevention 
of tax abuse (Cum/Ex, treaty abuse, etc.) to ensure that everyone pays their fair share of 
taxes. 

A  solution  at  EU  level  that  would  digitalise  and  harmonise  key  features  of  WHT 
procedures  while  respecting  the  principle  of  proportionality,  thus  avoiding  excessive 
negative consequences, would be expected to result in a lower administrative burden and 
hence time and costs savings  for tax administrations, investors, financial intermediaries 
and companies.  

In light of the above, making WHT procedures more efficient and fighting against fraud 
are objectives that can be met more effectively and efficiently at EU level. 

The added value of EU action is broadly confirmed in the public consultation where the 
vast  majority  of  respondents  (close  to  94 %)  stated  that  the  same  WHT  procedures 
system should be set up throughout the EU. Only 0.4 % of replies find low added value 
in an EU wide harmonised framework. 

4  Objectives: What is to be achieved? 
Figure 3: Objective chart 
Source: DG TAXUD 

14 

 
4.1  General objectives 

The general objectives of this initiative are to achieve fair taxation – by ensuring that 
taxpayers do not pay more than they should and that taxes which are due are paid - 
and to reinforce the capital market union.  

1)  Reinforce the capital market union 

To  ensure  free  movement  of  capital,  this  initiative  aims  to  facilitate  cross-border 
investment. The initiative seeks to make the EU market more attractive to investors by 
giving  taxpayers  proper  access  to  DTT  benefits,  hence  creating  a  competitive  Single 
Market  across  Europe.  The  initiative  aims  to  fully  exploit  larger-scale  markets  as 
nowadays  EU  financial  actors  are  disadvantaged  compared  to  their  global  peers.  The 
scale  of  Europe’s  capital  markets  does  not  match  the  size  of  its  economy,  and  there  is 
ample room to increase the euro’s role as an international currency. 

Taxation can present a serious obstacle to cross-border investment and thus to creating a 
genuine CMU. Alleviating the tax associated burden in cross-border investment does not 
necessarily require harmonisation of tax codes or rates. It can be achieved by providing 
Member States with the proper tools to effectively monitor the tax withheld quickly and 
being able to refund the excess withheld when appropriate.  

A  fully  functioning  and  integrated  market  for  capital  with  no  barriers  will  support  the 
EU’s economy to grow in a sustainable way and be more competitive. An economically 
stronger Europe will better serve its citizens and help the EU play a stronger role on the 
global stage.  

2)  Ensure fair taxation  

Ensuring fair taxation also requires preventing tax abuse. Providing Member States´ tax 
administrations with  the  proper tools to address  the current  lack of transparency  would 
make  circumventing  WHT  rules  more  difficult.  Therefore,  this  initiative  aims  to 
contribute  to  safeguarding  the  tax  revenues  of  Member  States,  to  making  tax  systems 
fairer and to ensuring a level playing field among all involved. 

Fighting  tax  fraud  and  evasion  to  help  secure  national  and  EU  revenues  is  one  of  the 
Commission’s priorities, whose political guidelines call for stepping up the fight against 
tax evasion to make taxation fairer (47). Such an initiative would also strengthen citizens’ 
trust in the fairness of the tax system, as it would address the public concern that income 
obtained by investing in financial markets will be effectively taxed once in the country of 
investment. 

15 

 
 
4.2  Specific objectives 

Making WHT reclaim procedures for non-resident investors more efficient is one of 
the specific goals of the current initiative. More specifically, the initiative aims to: 

  Shorten the average time for refunding excess tax withheld in the EU. 
  Simplify withholding tax procedures. 
  Promote digitalisation and harmonised procedures. 
  Ensure  equal  access  to  treaty  benefits  for  portfolio  investors  as  direct  investors 

have.  

Secondly, the initiative is meant to improve the ability of Member States to detect and 
counter  cross-border  tax  fraud,  avoidance,  and  evasion.  In  order  to  enhance  such 
ability,  new  tools  should  be  provided  to  Member  States  in  terms  of  higher  levels  of 
digitalisation  and  transparency.  This  ability  is  dependent  on  the  quality,  relevance,  and 
timeliness  of  information  to  which  Member  States  have  access  to  and  on  how  the  tax 
administrations deal with such information. If tax officers have the information they need 
at  the  right  time,  it  will  be  possible  for  them  to  verify  that  the  tax  has  been  properly 
withheld and perform risk management so as to ensure that their resources are allocated 
to  high-risk  cases.  By  increasing  the  probability  of  detecting  non-compliance,  the 
initiative  aims  to  have  a  deterrent  effect,  discouraging  fraudulent  actions  and 
incentivising taxpayers to declare and pay taxes owed. 

Both  objectives  that  will  be  addressed  by  the  initiative  -  improving  efficiency  and 
fighting tax abuse – are of equal importance. Current refund procedures are found to be 
inefficient,  which  is  costly  and  detrimental  to  all  stakeholders  (investors,  financial 
intermediaries, and tax administrations) and weighs on the overall investment climate in 
the  EU.  At  the  same  time,  WHT  refund  procedures  have  proven  vulnerable  to  fraud, 
which led to severe tax revenue losses in some Member States. Therefore, to cater to the 
needs of Member States and their tax administrations as well as of investors and financial 
intermediaries, both objectives need to be met. 

5  What are the available policy options? 
Designing an effective and efficient solution to the depicted problems is challenging. At 
the highest level of analysis, a choice is to be made between the status quo or baseline, 
that represents a non-regulatory setting, and a scenario where the Commission would act 
in  a  legislative  manner.  Under  a  regulatory  framework,  there  are  several  options  for 
improving WHT procedures in the EU. This chapter describes the options identified. 

5.1  What is the baseline from which options are assessed? 

Under  the  baseline  scenario,  the  EU  would  not  act.  Tax  administrations  from  Member 
States  would  retain  their  existing  procedures,  which  vary  in  terms  of  scope  and 
administrative  requirements (48).  As  explained  under  the  problem  definition  section,  the 
majority of Member States levying WHT at source over dividend and interest payments 
to  non-resident  investors  have  in  place  at  least  the  standard  refund  procedure  in 
combination  of  one  or  two  of  the  other  WHT  systems  (relief  at  source  and/or  quick 
refund). Member States are likely to continue applying a combination of different WHT 
systems. 

Furthermore,  a  tendency  can  be  observed  that  some  Member  States  try  to  address  the 
problem  of  fraud  and  abuse  in  different  ways.  This  increases  the  fragmentation  of  the 

16 

 
WHT  procedural  framework  among  Member  States  and  further  aggravates  the  existing 
problem making EU action to standardize the procedures thus more urgent.  

As  mentioned  in  chapter  2,  under  this  “no-policy-change”  scenario,  investors  would 
continue to incur costs amounting to EUR 6.62 billion per year according to an updated 
estimate  performed  by  the  JRC  in  2022  (49).  The  total  cost  estimation  is  composed  of 
three elements: 

1) 

2) 

3) 

Foregone  tax  relief:  Due  to  the  complexity  and  cost  of  WHT  procedures,  some 
investors do not claim their tax refunds. This component is assumed to represent 
10% of the total amount of cross-border investment. 

Opportunity  costs:  Due  to  delayed  payments  of  tax  refunds,  the  investor  incurs 
opportunity costs as the money cannot be invested elsewhere and hence generate 
income. The opportunity costs have been calculated assuming an average delay of 
one year and a risk-free rate of 0.6% (50). 

Incurred  costs:  The  incurred  costs  relate  to  the  costs  effectively  paid  under  a 
reclaim procedure, such as the costs associated with the paperwork and different 
source  country  requirements,  or  the  costs  incurred  by  custodians  or  external 
service providers. It is assumed to account for an average of 2% of the refundable 
amount. 

The  estimation  of  the  costs  has  been  assessed  in  previous  JRC  studies  undertaken  in 
2009, 2016, and 2021 (see Annex 4). The decrease in the estimated costs for 2021 (see 
table 1 below) can be attributed to the following factors: decrease in the risk-free interest 
rate, decrease in the return rate of investments, and a decrease of the differences between 
national  and  tax  treaty  rates  of  some  Member  States.  Driven  by  the  current  economic 
context  and  recent  evolution  of  interest  rates,  the  additional  calculation  of  2022  was 
recently performed by the JRC using long-run yields (period 2000-2019) and is taken as 
dynamic  baseline  for  comparison  purposes.  A  summary  of  the  estimates  arising  from 
JRC’s subsequent studies is shown in the table 1: 

Table 1: Overview estimated costs (EUR bn) 
Source: DG TAXUD based on JRC studies 

WHT Costs 

2009 

2016 

2021 

2022 (long-run yield) 

1) Foregone tax relief 

2) Opportunity costs 

3) Incurred costs 

TOTAL 

5.47 

1.84 

1.09 

8.4 

6.03 

1.16 

1.21 

8.4 

4.37 

0.28 

0.87 

5.52 

4.83 

0.82 

0.97 

6.62 

The costs presented in the above table reflect the total costs borne by investors in case of 
investments in EU companies; with 52% of these costs borne by EU investors.  

In addition to the estimated costs for investors, the effects on GDP (and other elements) 
have  also  been  estimated  in  case  WHT  were  removed  using  a  Cobb-Douglas  function. 

17 

 
 
The  elimination  of  WHT  is  used  as  an  approximation  of  fully  functioning  WHT  tax 
procedures.  The  table  below  indicates,  based  on  the  CPIS  Survey  on  cross-border 
portfolio security investments in the EU, the impact that eliminating WHT costs would 
have.  Therefore,  it  reflects  the  increasing  investments  towards  the  EU  that  would  take 
place  in  case  of  EU  action  (and  conversely  gives  an  indication  of  the  investments  that 
would be missed out in the absence of EU action):  

Table 2: Impact of eliminating WHT costs  
Source:  JRC 2021/2022 study on WHT costs 

Impact of removing WHT costs (%) 

Reduction in the cost of capital 

Increase in GDP 

0.09% 

0.031% 

For robustness purposes, a second simulation was performed by JRC in 2021 using the 
Commission’s  economic  model  CORTAX  which  analysed  the  tax-benefit  policies  of 
Member  States  to  assess  the  effects  of  removing  tax  overpayments  (defined  as  non-
refundable  WHT)  on  GDP,  investment,  wages,  employment  and  tax  revenues.  The  net 
tax  revenue  figure  shows  that  the  increase  in  tax  revenue  from  the  positive  change  in 
economic  indicators  is  outweighed  by  the  decrease  in  WHT  revenues  due  to  more 
efficient  reclaim  procedures.  This  leads  therefore  to  a  net  tax  revenue  loss.  The  table 
below reflects the outcome of this simulation: 

Table 3: Macro economic Impact 
Source: DG TAXUD based on JRC studies 

Average annual change among EU27 with respect to status quo 

Capital 

Wages 

Employment 

GDP 

Net tax revenues  

0.137% 

0.048% 

0.006% 

0.047% (51) 

(0.039%) 

Therefore, as mentioned above, in case of non-binding EU action, the EU would miss a 
boost in investments towards the EU that would have resulted in an increase of 0.047% 
of  the  EU27  GDP;  0.137%  in  capital  investment  and  0,048%  in  wages  as  2nd  round  of 
macro-economic effects estimated by CORTAX Commission’s economic model.  

As  regards  fraud,  in  the  absence  of  EU  action,  Cum/Ex  fraud  could  still  happen  -  the 
losses  from  Cum/Ex  were  estimated  at  EUR  9.1  billion  for  the  years  2000-2020. 
Similarly,  safeguards  are  needed  to  address  Cum/Cum  practices,  which  led  to  tax 
revenues losses of EUR 141 billion for the years 2000-2020(52).  

18 

 
 
 
 
 
5.2  Description of the policy options 

All  the  options  presented  below  imply  a  legally  binding  framework.  Options  2  and  3 
build  on  option  1.  Prior  to  entering  into  a  detailed  explanation  of  each  option,  the 
following summary of the options gives an overview of the elements further explained in 
chapter 5.  

Three  options  are  envisaged  to  tackle  inefficient  and  prone  to  fraud  WHT  refund 
procedures.  The  check-chart  below  shows  the  elements  included  in  each  of  the  three 
policy options: 

Table 4: Overview of options and elements 
Source: DG TAXUD 

All these elements will be further explained under each of the following sections. 

5.2.1  Option  1  —  Common  EU  digital  tax  residence  certificate  (eTRC)  +  common 

reporting 

This  option  encompasses  the  eTRC,  common  reporting  requirements  for  financial 
intermediaries  within  the  financial  chain  vis-à-vis  the  tax  administration  of  the  source 
Member  State,  standardised  due  diligence  procedures,  common  rules  for  liability 
allocation  and  the  option  for  financial  intermediaries  to  file  requests  on  behalf  of 
clients/taxpayers  in  one  digital  form  with  tax  authorities.  These  elements  would  be 
implemented  by  Member  States  to  improve  and  amend  their  existing  refund  or  relief 
procedures.  

The features of Option 1 are the following: 

1.  Introduction of Digital Tax Residence Certificate: eTRC 

19 

 
  
 
Each  Member  State  would  have  the  obligation  to  put  in  place  a  system  allowing  the 
digital  issuance  of  tax  residence  certificates  using  a  common  EU  format  in  terms  of 
minimum  content  and  a  common  IT  technology.  All  Member  States  would  have  the 
obligation to recognise these eTRCs as a valid proof of residency. Such certificate would 
be  issued  by  the  country  of  residence  of  the  investor  and  would  enable  the  tax 
administration of the source Member State to examine whether the investor is eligible for 
a reduced WHT rate. 

Setting  up  an  eTRC  would  not  involve  a  harmonisation  of  the  criteria  to  determine 
whether a specific investor is resident for tax purposes in a country (53). Every Member 
State would determine the residence according to its own domestic rules. The consistency 
across  Member  States  would  come  from  a  standardisation  of  the  format  and  of  the  IT 
solution. In particular, the eTRC would have the following features: 

Consistency in format 
1.  Common  minimum  content:  identification  of  the  taxpayer,  country  of 
residence, date of issuance and validity period. 
2.  Standardised  validity  period  of  one  year  whereby  the  eTRC  could  be  used 
multiple  times  to  reclaim  refunds  and  be  potentially  used  for  other  purposes 
insofar as permitted by the national legal framework. 

Consistency in technology 
1. Available to be requested online. 
2. Tax administrations’ capability to issue it electronically in real-time. 
3.  Common  verification  method  to  ensure  the  reliability  of  the  source  and  the 
authenticity  of  the  document  across  Member  States.  This  common  verification 
method  could  be  achieved  based  on  four  potential  IT  solutions:  (i)  verifiable 
credentials  (relying  on  a  verification  model  based  on  machine-readable, 
cryptographically verifiable certificates that allow the users to keep the eTRC in a 
digital wallet), (ii) electronic seals (providing trust regarding the authenticity of 
the issuer, as well as the integrity of the certificate via electronic signature), (iii) 
data publication (relying on the issuer pro-actively publishing certificates to all 
verification  service  providers,  either  directly  or  via  a  central  database)  and  (iv) 
data  querying  (relying  on  the  issuer  to  provide  web  services  for  querying 
certificates, which can be consumed on demand by verification service providers) 
– see Annex 12 for more details. 

2.  Reporting obligations (54)  

The proposed reporting obligations would set a common standard with regard to the kind 
of information to be shared with the tax administration and would also create a common 
standard on how it would be shared.  

Reporting  by  financial  intermediaries  is  required  to  combat  tax  abuse  in  the  form  of 
Cum/Ex and Cum/Cum as explained in  Chapter 2. For Cum/Ex, the WHT agent  or the 
tax  authority  would  have  information  available  on  the  dividend  to  ensure  that  (i)  the 
WHT has been levied in the first place; and (ii) that only one refund can be requested for 
the WHT levied in (i). The lack of transparency of information in the financial chain has 
resulted  in  the  Cum/Ex  abuse.  For  Cum/Cum,  the  information  reported  by  financial 
intermediaries,  such  as  the  acquisition  date  of  the  security,  can  be  used  by  the  WHT 
agent  or  the  tax  authority  for  risk  assessment  purposes  to  prevent  the  tax  avoidance 
practices related to Cum/Cum.  

20 

 
 
 
  Who would share the data? The data would be reported directly, depending on the 
option  chosen  by  the  Member  States,  to  the  WHT  agent  or  the  tax  authority  in 
source  Member  State  by  all  EU-based  financial  intermediaries  playing  a  role  in 
the  dividend/interest  payment  chain,  in  a  comprehensive  and  standardised  way. 
Non-EU-based financial intermediaries would have to report in a similar way in 
case they are enrolled to a dedicated Register (explained below). 

  Which  data  would  be  reported?  The  reported  data  would  equip 

tax 
administrations  with  the  information  they  need  to  assess  whether  a  taxpayer  is 
entitled  to  a  reduced  WHT  rate  or  not.  It  would  notably  include  identification 
information  about  the  financial  intermediary  and  the  final  investors  (Taxpayer 
Identification  Number,  name,  address,  etc.)  and  dividend/interest  payment 
information  (issuer,  ISIN  number,  date  of  payment,  WHT  rate  applied,  net 
dividend/interests received and the WHT amount levied). 

  How  would  the  information  be  shared?  The  reporting  is  to  be  done  in  a  digital 
format,  thus  allowing  both  the  provider(s)  of  the  data  (financial  intermediaries) 
and  the  recipient(s)  (tax  administrations)  to  compile  and  process  the  data  in  an 
automated and standardized manner. 

  When would the data be reported? All financial intermediaries established in the 
EU and non-EU financial intermediaries registered would be obliged to report to 
the relevant tax administration without delay after the dividend/interest payment 
has  taken  place.  After  consulting  the  relevant  stakeholders,  including  tax 
administrations, reporting the information within 25 calendar days of the payment 
date would be a realistic deadline. 

Thanks to this reporting, tax administrations would obtain the information  they need to 
apply their own risk management and process refund requests promptly. 

Harmonising  the  data  to  be  reported  would  result  in  heavier  reporting  obligations  for 
financial intermediaries compared to the current situation, both in terms of the number of 
financial intermediaries that would have to report to the tax authorities, and in terms of 
the  amount  of  information  that  would  have  to  be  reported  (see  section  6.1  for  more 
details).  Yet  as  a  few  Member  States  are  considering  introducing  additional  reporting 
requirements,  a  harmonised  set  of  reporting  requirements,  the  digitalisation  of  the 
processes  and  the  harmonisation  of  the  format  would  be  expected  to  avoid  a  situation 
where financial intermediaries would face different information requirements established 
by national law and a variety of forms which might lead to an uneven playing field and 
an even heavier administrative burden.  

3.  Due diligence  

The  financial  intermediary  closest  to  an  investor  that  is  seeking  withholding  tax  relief 
would need to perform a set of checks regarding its client, i.e. due diligence procedures. 
These procedures should build on the due diligence procedures required under DAC2 and 
on the know-your-customer (KYC) rules that are applicable to financial institutions under 
the EU Anti-Money Laundering Directive (55). Under these rules, financial institutions are 
already  required  to  conduct  customer  due  diligence  in  connection  with  the  opening  of 
accounts  and  certain  specified  transactions  on  an  on-going  basis.  The  rules  generally 
require  the  financial  institution  to  identify  the  customer  and  to  verify  the  customer’s 
identity using reliable and independent documents, data or information. 

Such  due  diligence  procedure  would  be  complemented  by  two  actions  geared  towards 
ensuring that the relevant investor is entitled to the reduced tax rate: 

21 

 
  checking the authenticity of the  content and the source of the eTRC via the 

common verification method agreed and  

  checking the correct applicable WHT rate according to the DTT or domestic 

rules.  

4.  Liability allocation  

Common  rules  would  be  introduced  to  define  when  financial  intermediaries  would  be 
held liable for the provision of incorrect data, which would lead to loss of tax revenue for 
the Member State. The liability would be placed at the level of the financial intermediary 
closest to the investor, who is responsible for performing the due diligence requirements. 
The  intermediary  would  be  liable  in  case  of  mis-  or  underreporting,  except  if  the 
intermediary proves it has taken reasonable measures to check the taxpayer's entitlement 
to reduced WHT rates. 

5.  Multiple requests on a bulk basis 

A  common  standard  for  financial  intermediaries  would  be  set  to  request  a  refund  on 
behalf of their clients, so-called ‘bulk’ requests (56). It implies an agreement on a common 
refund form or IT scheme for the request to be done in an automated way.  

6.  Scope 

The  implementation  of  the  eTRC  would  cover  all  Member  States.  For  the  reporting 
obligations  and  other  elements  included  in  this  option,  the  scope  covers  those  Member 
States  where  non-resident 
taxation  when  receiving 
investors  may  face  double 
dividend/interest payments because the Member State of the investment  has a domestic 
WHT rate for cross-border dividend/interest payments which is higher than the WHT rate 
stated  in  their  DTTs  (57).  It  will  be  applied  in  relation  to  dividend  or  interest  payments 
from EU listed companies to portfolio non-resident investors wherever they are located. 

7.  Non-EU dimension 

The  eTRC  would  be  potentially  scalable  to  those  third  countries  that  are  willing  to 
commit  on  similar  level  of  digitalisation,  content  and  verification  method  (this  would 
benefit  non-EU  investors).  On  the  other  elements  under  option  1,  non-EU  financial 
intermediaries  would  be  allowed  to  join  the  system,  but  this  would  be  on  a  voluntary 
basis.  In  order  to  do  so,  they  would  need  to  register  in  a  dedicated  register.  Registered 
non-EU financial intermediaries would have the same benefits (provide their clients with 
swifter  procedures)  and  obligations  (reporting  and  liability  obligations)  as  EU-based 
financial  intermediaries.  The  authorization  process  for  registration  and  monitoring  of 
compliance will be under the operational control of the relevant Member State. 

This  option  would  imply  that  Member  States  will  be  able  to  make  their  existing 
refund/relief procedures more effective and fraud-proof. Therefore, under this option the 
existing refund and relief procedures currently in place in every Member State will gain 
directly in efficiency and security. 

5.2.2  Option 2 - Relief at source system  

This  option  builds  on  the  elements  introduced  in  option  1.  In  addition,  option  2  would 
implement at EU level a relief at source system, which is characterized by applying the 
reduced  WHT  rate  directly  at  the  moment  of  the  interest  or  dividend  payment  (58). 
Nevertheless, a standard refund system would remain in place as  a back-up option (see 
section 2.1). 

22 

 
It  entails  a  standardised  procedure  for  claiming  withholding  tax  relief  at  source  on 
portfolio investments. A relief at source system allows the withholding tax agent to apply 
reduced rates on WHT pursuant to DTTs or domestic rules on behalf of their customers 
(portfolio investors) at the moment of dividend/interest distribution. 

The relief at source system envisaged by the EU initiative  would build on option 1 and 
would also specify the applicable procedure to allow for the relief. Specifically, it would 
have the following features: 

1.  eTRC, common due diligence procedure and fair liability allocation  

All these elements remain the same to what is described under option 1.  

2.  Reporting obligations 

The  reporting  obligations  defined  under  option  1  would  be  leveraged  under  a  relief  at 
source system  with  the  only difference that the information  would  be sent to the WHT 
agent  in  charge  of  paying  the  dividend  instead  of  the  source  tax  administration.  The 
information would be reported, in a subsequent phase, from the WHT agent to the source 
tax administration. 
3.  Procedure 

This  option  provides  for  a  system  where  the  correct  amount  of  WHT  is  applied  at  the 
moment of paying the dividend to the investor. This task is outsourced to a WHT agent 
or financial intermediary.  

4.  Scope 

This  system  would  apply  to  payments  to  non-resident  portfolio  investors  from  listed 
companies  located  in  any  of  the  Member  States  covered  by  the  reporting  obligations 
under Option 1. 

5.  Non-EU dimension 

In terms of eTRC and reporting, the same approach as under Option 1 would apply.  

Under this option, Member States with no relief at source would need to introduce it and 
those Member States with a relief at source may need to extend the scope and make the 
necessary amendments in the reporting obligations in order to standardize their systems 
to the relief at source regulated in the proposal. 

This option is the preferred one among investors and financial intermediaries as shown in 
the  public  consultation  and  target  meetings  with  the  industry.  This  option  was  also 
identified by the Commission in the Action Plan for fair and simple taxation supporting 
the recovery strategy and the Action Plan for a Capital Market Union (59).  

Therefore, even when there may be Member States reluctant to implement it in the short-
term  given  the  recent  Cum/Ex  scandals,  setting  up  a  relief  at  source  system  is  clearly 
considered  as  a  goal  to  be  achieved  in  the  long-term  from  the  perspective  of  truly 
attaining a CMU. 

5.2.3  Option  3 –Quick refund  system  ('QRS') within  a  set  time frame or/and Relief  at 

source system (‘RAS’) 

Option 3 fully encompasses option 1 as described above with the added requirement that 
Member States applying a refund system should ensure that the reclaim is handled within 
a pre-defined timeframe (60), so-called the Quick refund system. Additionally, under this 
option, Member States can introduce or continue to implement a relief at source system 
in  order  not  to  restrict  Member  States  to  relieve  double  taxation  at  the  moment  of 
payment.  

23 

 
This option ensures that Member States have at least one effective WHT system in place 
to provide relief, such as QRS. But it shall also allow them to use RAS where they deem 
it appropriate rather than only providing QRS.  

The main features of Option 3 are the following: 

1.  eTRC, reporting obligations, due diligence procedure, liability allocation and 

request in bulk basis 

These elements remain the same to what is described under option 1.  

2.  Procedure 

Member States will continue to have the choice to either implement a relief at source or a 
refund  procedure  within  a  set  timeframe(61).  The  relief  at  source  would  be  as  stated  in 
option 2. Under QRS, all actors in the process need to report information, perform checks 
or make payments within set time limits. The only difference between a standard refund 
procedure and the quick refund procedure is the timing. An overview of the quick refund 
procedure process is depicted in figure 5 below. 

3.  Scope  

Option  3  covers,  similarly  to  Option  2,  dividend  and  interest  income  payments  from 
listed companies established in any of the Member States where the statutory rate to non-
resident is higher than conventional one and it is paid to portfolio investors (62).  

4.  Non-EU dimension 

In terms of eTRC and reporting, the same approach as under Option 1 would apply.  

Figure 5: Description of the QRS procedure (timeline) 

Source: DG TAXUD 

(Legend: X+number of days) 

The  deadlines  mentioned  in  the  figure  are  based  on  the  results  of  the  targeted 
consultations undertaken mainly with financial intermediaries and tax administrations (63) 
in  terms  of time needed  for each intermediary involved in  the financial chain. Existing 
refund  procedures  in  some  Member  States  may  already  comply  with  this  pre-defined 
timeframe (64). 

24 

 
 
 
Financial intermediaries that do not comply with their obligations, including in terms of 
timeframe,  could  be  faced  with  sanctions  (65)  such  as  fines.  Tax  administrations  that 
would  not  process  the  refunds  within  the  set  timeframe  -  without  valid  reason,  such  as 
raising  questions  to  further  investigate  the  request  -  would  need  to  add  interest  penalty 
payments (66) to the refund payments.  

An important feature of the QRS is that tax administrations would retain control of the 
procedure. More specifically, they have the opportunity to check on the basis of their risk 
management strategy and in an automated way, the requests received before the refund is 
paid.  In  case  the  checks  would  result  in  the  need  for  further  queries,  the  tax 
administration has the option to halt the procedure and investigate further. 

It should be noted that under the QRS, the control of the refund process - including the 
risk  assessment-  is  undertaken  by  the  tax  administrations.  Under  RAS,  the  ex-ante 
monitoring  task  is  outsourced  to  financial  intermediaries,  while  tax  administrations 
would be able to perform checks ex-post to ensure the financial intermediaries perform 
their task correctly.  

5.3  Option discarded at an early stage 

The  option  of  choosing  a  non-binding  instrument  to  address  hurdles  encountered  in 
relation to WHT procedures was discarded. The experience with a soft-law approach (in 
particular  the  2009  Recommendation  and  the  2017  Code  of  Conduct)  has  proven 
ineffective  in  the  past  and  would  not  bring  any  added  value  compared  to  the  baseline 
scenario (see Annex 10 for further explanation on the soft-law measures). 

The possibility of introducing a common Quick refund system across Members States as 
a  standalone  option  has  not  been  considered  since  it  would  imply  that  Member  States 
where relief at source system is already being applied (either as a primary system of for 
some payments) need to step back and replace this system with a common Quick refund 
system for every payment. As long as Member States are comfortable to apply the relief 
at  source  system  they  should  be  allowed  to  maintain  a  system  that  does  not  produce 
provisional double taxation. Obliging to establish a Quick refund system for all payments 
would run against the objective of moving towards a relief at source system (see section 
1). 

The  figure  below  provides  a  chart  on  the  intervention  logic  related  to  the  current 
initiative where the link between the problem tree, the objectives and the policy options 
are clearly stated: 

Figure 6: Intervention logic 
Source: DG TAXUD 

25 

 
6  What are the impacts of the policy options? 
This  section  is  organised  as  follows.  First,  the  economic  impacts  are  presented.  A 
summary of the economic impact of the policy options is followed by the effects of the 
initiative on SME’s. Then, the economic impacts of options 1-3 are considered in terms 
of:  (a)  the  costs  and  benefits  for  investors,  (b)  the  costs  and  benefits  for  tax 
administrations,  (c)  the  costs  and  benefits  for  financial  intermediaries  and  (d)  the 
macroeconomic  effect  for  Member  States.  Finally,  there  is  an  assessment  of  the  social 
and environment impact, and impacts on fundamentals rights, notably on the right to the 
protection of personal data.  

6.1  Economic impacts of the policy options 

6.1.1  Overview of economic impact of options 1-3 

Before entering into the detailed assessment of each policy option, hereinafter there is a 
summary chart of the costs and benefits for the main stakeholders under each option. The 
table  below  provides  an  overview  of  the  benefits  and  costs  for  investors,  financial 
intermediaries, tax administrations and Member States. 

Table 5. Summary of costs and benefits for stakeholders under Options 1-3  
Source: DG TAXUD 

Summary of cost and benefits (EUR) 

 Stakeholders 

 Concept  

Option 1 

Option 2 

Option 3 

Investors 

Benefits 

Reduction of costs 
compared to 
baseline (annually) 67 

26 

3.31 billion 

6.62 billion 

5.17 billion 

 
 
 
 
Company issuing the 
security 

Benefits 

Increase of investor 
base 

Financial 
intermediaries 

Benefits 

Higher turnover due 
to increase in cross-
border investments  

+ 

+ 

+++ 

+++ 

++ 

++ 

Financial 
intermediaries 

Benefits 

Financial 
intermediaries 

Costs 

Financial 
intermediaries 

Costs 

Member States’ tax 
administrations 

Benefits 

Member States’ tax 
administrations 

Costs 

Decrease in recurring 
costs for 
implementation of 
the standard refund 
procedure (annually) 

Implementation 
costs of the new 
reporting 
requirements and 
standard refund 
procedure   

Recurrent costs of 
new reporting 
requirements 
(annually) 

Increasing Member 
States’ ability to 
tackle tax abuse 

IT development costs 
for implementing 
eTRC (excludes 
potential cost 
savings) 

13.5 million 

Same 
benefits as 
Option 1 

Same 
benefits as 
Option 1 

Reporting 
requirements:  
54.2 million 

Streamlined 
refund: 21.7 
million 

Total:  75.9 
million 

Reporting 
requirements: 
13 million 

Same  costs 
as Option 1 

Same  costs 
as Option 1 

Same  costs 
as Option 1 

Same  costs 
as Option 1 

+++ 

++ 

+++ 

Ranges from 
4.9-54 million  

Same  costs 
as Option 1 

Same costs 
as Option 1 

Member States’ tax 
administrations 

Costs 

IT recurring costs 
related to eTRC 
(annually) 

Ranges from 
0.972-10.8 
million 

Member States’ tax 
administrations  

Costs 

 Costs of the new 
reporting systems to 
receive information 
from financial 
intermediaries 

Implementing 
costs: 18.2 
million  

Recurrent 
costs: 3.5 
million/year 

Same  costs 
as Option 1 

Same costs 
as Option 1 

Member States EU27 

Due to reduction in 

-1.52 billion 

-3.11 billion 

-2.21 billion 

27 

 
 
 
 
net tax revenue 

double taxation  

GDP change (%) (Cobb-
Douglas function) 

GDP increase EU27 

 Initial increase on 
GDP (%) in EU27 

 Initial increase on 
GDP in EU27  

0.016%  

0.031% 

0.025% 

2.27 billion 

4.31 billion 

3.54 billion 

As shown above in Table 5, Member States would be expected to incur a net tax revenue 
loss under Options 1-3. These net amounts reflect two opposite impacts on tax revenues: 
(i) the loss of  tax revenue that Member States  would incur due to  more efficient  WHT 
procedures resulting in less foregone WHT for investors, and (ii) additional tax revenues 
due  to  an  increase  in  GDP,  through  increased  cross-border  investment,  and  increased 
employment and wages. Member States will collect additional tax revenue as a result of 
the  reporting  of  information  to  counter  tax  abuse,  however,  it  has  not  been  possible  to 
quantify these amounts and it is therefore not reflected in the above table.  

Table 6. Summary of net tax revenue for the EU27 under Options 1-3 (EUR billion) 

Option 1  Option 2  Option 3 

Additional tax revenues stemming from an increase in GDP 
and wages 

0.91 

1.72 

1.41 

Reduction in double taxation (and WHT revenue foregone for 
investors) due to more efficient WHT procedures 

-2.43 

-4.83 

-3.62 

Net tax revenue loss 

-1.52 

-3.11 

-2.21 

Note: calculations based on 2019 CPIS cross-border securities data. 

The  amounts  related  to  the  benefits  for  investors  are  derived  from  the  JRC  study  for 
withholding  tax  costs  used  for  the  baseline  as  outlined  in  Chapter  5.1.  The  amounts 
related to  GDP, investment,  wages, employment and  net  tax revenues are derived from 
the CORTAX model used by JRC and outlined as well in the baseline scenario.  

6.1.2  Economic impact of the initiative on SME’s 

Under  the  SME  test,  SMEs  are  not  identified  as  a  relevant  affected  business  by  the 
proposal (68). Any impact  of the policy options will not  differ between large companies 
and SMEs if they are acting as portfolio investors and indeed both may benefit from the 
outcome of the policy options (69). As securities issuers, large companies and SMEs that 
regularly  distribute  dividends  and  are  traded  on  the  stock  markets  would  be  equally 
affected  as  well,  as  they  would  overall  benefit  of  becoming  more  attractive  investment 
opportunities with a higher return. However, investment in cross-border securities from 
listed companies by retail investors is primarily happening in large companies rather than 
in SMEs.  

From  the  public  consultation,  no  comments  received  were  specific  to  SMEs  as  regards 
their role as an investor, as a financial intermediary or as an investment company.  

28 

 
  
  
 
 
 
6.1.3  Option  1  Common  EU  digital  tax  residence  certificate  (eTRC)  +  common 

reporting 

6.1.3.1  Setting up a common EU digital TRC 

The  impact  on  stakeholders  of  introducing  an  eTRC  are  outlined  below,  taking  into 
consideration the various technological solutions envisaged for the eTRC (i.e. verifiable 
credentials; electronic seals; data publication; and data querying).  

Costs and benefits for investors 

The costs of using an eTRC are expected to be minimal for investors. The digitalisation 
of  the  tax  residence  certificate  would  mean  that  a  WHT  refund  request  could  be 
submitted  digitally  facilitating  investors’  interactions  with  national  tax  administrations 
and speeding up the overall process of reclaiming WHT. It is expected that, similar to the 
existing  paper-based  version,  obtaining  electronic  tax  residence  certificates  would 
continue to be free for investors. However, investors would also need to have access to a 
computer and/or mobile device to be able to benefit from the digital certificate, if the IT 
solution chosen is verifiable credentials and electronic seals as described in Chapter 5.  

More specifically, to be able to use verifiable credentials, investors would need to obtain, 
install,  and  operate  a  wallet  application  (on  mobile  device,  desktop,  or  even  cloud)  to 
hold the eTRC along other credentials and interact with his/her identity provider and with 
the  verifier(s).  At  worst,  for  investors  as  natural  persons  the  price  of  mobile  wallet 
software  is  expected  to  be  in  line  with  typical  mobile  (Android  or  iOS)  applications. 
Investors as legal persons should use digital wallet software, typically as a subscription to 
a wallet-as-a-service in the cloud, but it could also be a standalone application deployed 
on their own infrastructure. 

For electronic seals, any electronic storage solution (such as hard drive, USB stick, cloud 
storage, etc.) would be sufficient. 

Costs and benefits for tax administrations 

According  to  a  mapping  exercise  by  the  Commission  services,  a  number  of  Member 
States already  provide  a TRC in  some  form  of  electronic format  (e.g. pdf).  In terms of 
being  able  to  submit  a  WHT  refund  digitally,  6  Member  States  reported  in  a  survey 
undertaken  in  2021  that  this  was  the  main  method  used  to  submit  a  WHT  refund,  2 
Member  States  replied  that  a  digital  submission  was  for  a  minority  of  refund  claims, 
while  6  Member  States  indicated  that  only  non-electronic  means  of  submitting  refunds 
was possible (70).  

Digitalisation  of  the  tax  residence  certificate  would  facilitate  tax  administrations’ 
interactions  with  investors  and  allow  for  the  automation  of  reliable  and  secure  tax 
residence certificate validity checks, thus helping to combat fraud.  

The costs for tax administrations of the various IT solutions for the eTRC are provided 
below (and in more details in Annex 12): 

Table 7. Summary of annual costs and benefits for stakeholders  
Source: DG TAXUD 

EURO 

Options  A  (verifiable  credentials)  Option  C  (data  publication) 

29 

 
 
and B (electronic seals) 

and D (data querying) 

costs 

per 

180 000-300 000  

1-2 million 

Development 
Member State 

Annual  recurring  costs  per 
(20%  of 
Member  State 
development costs) 

Aggregate-27 
States development costs 

Member 

Aggregate-  27  Member 
States 
recurring 
costs 

annual 

36 000-60 000 

200 000-400 000 

4.9 million-8.1 million 

27 million-54 million 

972 000 -1.6 million 

5.4 million -10.8 million 

Therefore,  depending  on  the  IT  option  chosen  (through  implementing  acts),  IT 
development  costs  for  an  eTRC  for  the  EU27  are  estimated  to  be  between  EUR  4.9 
million and EUR 54 million. 

The  estimates  for  options  A  and  B  are  based  on  a  similar  electronic  seal  project 
undertaken  by  the  Commission.  The  actual  costs  of  implementation,  operation  and 
maintenance of the required IT services for options A-D will depend on the specific IT 
context  each  tax  administration  is  facing  (national  IT  market,  national  administration 
systems and online services already in operation, etc.). 

Costs and benefits for financial intermediaries 

The digitalisation of the tax residence certificate would allow financial intermediaries to 
automate  their  related  processes  and  save  potential  storage  costs  of  the  physical 
documents.  This  would  speed  up  the  refund  process  as  well  as  making  identification 
more secure by checking verifiable credentials and thus combatting fraud.  Compared to 
electronic  seals  (option  B)  which  “only”  verify  the  integrity  of  the  eTRC  and  the 
signature  by  the  tax  authority,  verifiable  credentials  offer  the  significant  additional 
benefit  that  the  verification  of  the  identity  of  the  beneficiary  (‘holder')  is  already 
‘embedded’, requires no human intervention and is therefore much less error prone.  

The  verification  costs  of  an  eTRC  would  be  expected  to  be  minimal  for  financial 
intermediaries.  However,  if  a  financial  intermediary  wants  an  automatic  verification 
process  which  allow  investors  to  directly  submit  an  eTRC  online  (either  as  verifiable 
credential or as electronic seal), then the implementation costs are estimated at between 
EUR  80 000  and  EUR  135 000  per  financial  intermediary  for  Options  A  and  B  (as 
detailed  in  Annex  12).  The  equivalent  costs  for  Options  C  and  D  are  between  EUR 
60 000  to  EUR  100 000  per  financial  intermediary.  Automatic  verification  may  be  an 
optimal cost/benefit solution for intermediaries like custodian banks with a large number 
of transactions. This cost is not taken into consideration in the final  estimation of costs 
for financial intermediaries as they are deemed optional. 

6.1.3.2  Common Reporting 

Option  1  entails  setting  up  reporting  obligations  for  financial  intermediaries  to  report 
WHT data to the tax administrations and/or the WHT agent in the Member State of the 
securities issuer.  

30 

 
 
Costs and benefits for investors 

No direct additional reporting costs for investors are anticipated as they already have to 
provide  a  number  detailed  information  based  on  the  existing  EU  AML  rules  KYC  and 
DAC2/CRS  which  financial  intermediaries  and  withholding  tax  agents  already  need  to 
comply with(71).  

Investors would benefit from this option since it should reduce the time to get the refund 
and  lower  opportunity  costs.  Decreasing  the  foregone  tax  relief  can  be  considered 
intermediate  in  terms  of  time  needed  to  get  the  refund  for  the  investors  between  the 
current  baseline  and  the  relief  at  source  and  quick  refund  options,  which  decrease 
significantly or almost completely the time between the launching of the request and the 
refund.  For  this  reason,  the  impact  of  this  option  has  been  estimated  by  relying  on  the 
following assumptions: average time of six months to get the refund, a number of people 
not claiming the refund halved according to the Commission study estimates in Annex 4, 
and a cost for processing the refund lowered due to digitalisation from 2% to 1% of the 
refundable amount. Building on the Commission studies, and their assumptions, the total 
costs incurred by investors are estimated to decrease by 50% under Option 1 compared to 
the baseline estimation. They amount to EUR 3.31 billion (compared to EUR 6.62 billion 
in the baseline scenario).  

Table 8: Estimated benefits for investors– breakdown cost reduction driver (EUR bn) 
Source: DG TAXUD and JRC calculations 
Benefits for the investor 

Option 1 

1) Reduction in opportunity costs of late refunds 

2) Decrease in foregone tax relief 

3) Decrease in incurred costs  

Total reduction in costs 

0.41 

2.42 

0.49 

3.31 

Costs and benefits for tax administrations 

High benefits are expected for tax authorities compared to the baseline scenario. Thanks 
to the reporting obligations, tax authorities in the source Member State would be able to 
use multiple sources of information  with which to check eligibility in  a relief at source 
system  and  to  ensure  that  a  WHT  refund  is  correctly  granted  to  the  investor.  Digital 
reporting of such information to the tax authority would help Member States to target tax 
abuse better by ensuring they are able to check underlying securities income and WHT 
data.  

The  amounts  involved  in  WHT  abuse  are  significant.  An  estimation  made  by  the 
journalist  network  Correctiv,  working  together  with  the  University  of  Mannheim, 
quantifies the losses from Cum/Ex at EUR 9.1 billion, and from Cum/Cum at EUR 141 
billion for the years 2000-2020(72). 

The  ESMA  report  noted  a  number  of  jurisdictions  that  had  implemented  investigations 
into  WHT  abuse  (73).  In  addition  to  the  aforementioned  WHT  abuse,  the  ESMA  report 
estimated  that  between  2012  and  2015,  Denmark  was  subject  to  a  WHT  fraud  for 
approximately 12.7 billion DKK (EUR 1.7 billion).  

31 

 
 
 
The  benefit  of  greater  transparency  in  terms  of  effectively  fighting  tax  abuse  would 
largely depend on the extent Member States already have rules in place at national level 
to counter tax abuse, such as anti-tax avoidance rules, and systems in place that can be 
used  to  detect  tax  abuse  (eg.  use  of  big  data  for  risk  assessment  purposes).  Bilateral 
discussions indicate that both national rules to prevent WHT abuse, and indeed systems 
to detect that abuse, vary widely between Member States. 

In  terms  of  costs,  reporting  systems  would  need  to  be  implemented  to  allow  multiple 
financial  intermediaries  to  report  to  the  source  Member  States.  Using  DAC6  data,  the 
cost  for  Member  States  tax  administrations  is  expected  to  entail  EUR  1.4  million  for 
implementation costs and recurring annual costs of 19% of implementation costs. As 13 
Member States  are currently considered within the scope of the proposal, the estimated 
implementation costs are EUR 18.2 million (74), with approximately EUR 3.5 million in 
recurrent annual costs. These estimates are consistent with the costs incurred by Finland 
for  implementing  their  new  relief  at  source  system,  which  includes  reporting  by  all 
intermediaries  in  the  financial  chain.  The  Finnish  tax  administration  estimates 
implementation and recurring costs of EUR 3.7 million over a 5-year period. 

Costs and benefits for financial intermediaries 

Meetings  with  business  stakeholders  and  two  targeted  surveys  were  sent  to  business 
stakeholders, (as outlined in Annex 2) with the objective of quantifying the incremental 
costs for the new reporting requirements. Most respondents were unable to provide cost 
estimates.  One  respondent,  however,  having  a  significant  market  share  of  the  global 
portfolio  custody  market  in  the  EU  and  operating  in  12  Member  States,  provided  cost 
data.  Based  on  the  data  supplied  by  this  respondent,  the  EU-27  development  cost  for 
financial  intermediaries  in  the  EU  is  estimated  to  be  EUR  54.2  million  with  recurring 
costs  of  EUR  13  million  (see  Annex  2  for  further  details)75.  Comments  from  other 
respondents to the survey confirmed that reporting costs would significantly increase.  

Bilateral discussions with Member States (as detailed in Annex 7) confirmed the replies 
from  business  stakeholders.  Currently  only  withholding  tax  agents  have  reporting 
responsibilities  with  their  own  tax  authority  and  not  with  the  tax  authority  of  another 
Member  State  (76).  Reporting  would  also  be  required  from  every  intermediary  in  the 
financial  chain  to  the  source  tax  authority,  which  is  generally  not  the  case  now. 
Furthermore,  the  content  of  data  to  be  provided  under  the  proposal  (all  data  should  be 
transactional)  would  differ  from  the  data  currently  reported  to  the  tax  authorities.  In 
addition, for the investor to benefit from a quicker refund as envisaged under Option 3, 
the reporting of the information to the tax authority would need to take place within 25 
days of the date of the shares going ex-dividend, while the current reporting is done on a 
quarterly or annual basis.  

6.1.3.3  Streamlined standard refund procedure 

The  streamlined  standard  refund  procedure  includes  a  standard  reclaim  form  with 
minimum data fields, a standard liability allocation through common due diligence rules 
and a non-EU financial intermediary Register, and the possibility to perform bulk basis 
requests.  

Cost and benefits for investors 

The digitalisation and streamlined standard refund procedure would benefit investors by 
lowering the cost of processing the claim. As a result, more investors would request their 

32 

 
refunds, decreasing the foregone tax relief.  It leads to costs saving of EUR 3.31 billion 
under Option 1, as explained in table 8.  

Costs and benefits for financial intermediaries 

For  financial  intermediaries,  costs  savings  would  result  from  the  introduction  of  a 
standard refund procedure in the EU, mainly due to its digitalisation aspects like the use 
of an eTRC and being able to submit a digital refund claim. Based on the data supplied 
by  the  aforementioned  respondent  to  the  targeted  survey  of  business  stakeholders,  the 
development costs of updating their existing WHT reclaim systems are estimated at EUR 
21.7 million for financial intermediaries in the EU with recurring cost savings estimated 
at EUR 13.5 million (see Annex 2 for further details).  

The  other  elements  of  the  streamlined  standard  refund  procedure  (standard  liability 
allocation  through  common  due  diligence  rules,  a  non-EU  financial  intermediary 
Register, and the possibility to perform bulk basis requests) are expected to have minimal 
cost impact on stakeholders. 

In  terms  of  due  diligence,  all  financial  intermediaries  in  the  EU  have  already  existing 
reporting  obligations  under  DAC2/CRS  with  their  own  tax  administration  and  are 
required to be compliant with KYC/AML rules. The only addition requirement would be 
related  to  providing  more  transparency  on  the  financial  chain  and  checking  the 
entitlement  to  reduced  tax  rates.  Therefore,  any  increase  in  costs  for  due  diligence  are 
expected to be minimal.  

Member  States  would  need  to  adjust  their  liability  rules  to  align  with  the  proposal, 
including ensuring that sanctions are dissuasive and proportionate. Apart from the costs 
of regulatory change no incremental costs are anticipated, as Member States already have 
liability rules for investors and intermediaries in terms of abiding by the current rules on 
WHT refunds.  

From the consultations, stakeholder groups for intermediaries acknowledge the need for a 
robust liability framework. They stress that intermediaries should only be held liable for 
not fulfilling their own obligations, for example under AML, KYC and DAC2 rules, and 
not  held  liable  for  information  provided  erroneously  by  investors  or  other  financial 
intermediaries.  Accordingly,  a  liability  framework  should  have  clearly  defined  and 
unambiguous rules. 

Establishing a common requesting method on bulk basis would imply reasonable costs as 
there are currently systems in place for financial intermediaries to submit refund requests 
on behalf of their clients. Again, we expect that the costs to move to a common format 
would  be  offset  by  the  advantages  of  being  able  to  do  it  in  bulk  through  a  single 
electronic form.   

In  order  to  ensure  that  non-EU  financial  intermediaries  comply  with  the  obligations  of 
the standard refund procedure, a specially dedicated system can be set up that is similar 
to the Finnish Authorised Intermediary system for relief at source (77). This would require 
limited  screening  criteria  for  authorisation  purposes  with  implementation  and  recurring 
costs  being  minimal  for  financial  intermediaries  in  registering  with  the  system  and  tax 
authorities for administrating the system. The benefit of using a register is that non-EU 
intermediaries would be pre-screened with eligibility criteria, for example whether they 
are  already  subject  to  financial  regulations  and  tax  rules  equivalent  to  those  already  in 
place in the EU.  

Macro-Economic effects for Member States  

33 

 
The benefits of Option 1 for Member States are the streamlined and increased reporting 
of data for verification purposes for refund claims which otherwise needs to be requested 
on a case-by-case basis or delivered via the refund request. However, ultimately Member 
States  would  still  be  responsible  for  verifying,  processing  and  refunding  WHT  refund 
claims,  therefore  the  speed  of  the  WHT  refund  would  partly  depend  on  their  internal 
processes.  

Therefore, while WHT refund processes are expected to improve, the expected benefits 
would  be  less  than  under  Options  2  and  3.  As  already  provided  earlier  in  table  5  the 
impact  of  this  option  would  increase  EU  GDP  by  0.016%  (50%  compared  to  the  full 
removal of WHT procedures) covering all investments in the EU from EU and non-EU 
investors. 

Table 9: Impacts on GDP 
Source: DG TAXUD and JRC calculation 
Concept 

Gross impact of financial costs 

Reduction in the cost of capital 

Increase in GDP 

Option 1 

0.16% 

0.05% 

0.016% 

6.1.4  Option 2 - Relief at source system  

In order for Option 2 to be effective, Option 1 is required to be implemented (that is an 
eTRC,  common  reporting,  streamlined  standard  refund  procedure,  customer  due 
diligence,  standard  liability  allocation,  and  register  for  non-EU  AI’s).  The  element  of 
standardised refund requests on an automated basis is not applicable for a relief at source 
system. The costs and benefits identified for Option 1 above remain relevant for Option 
2, with some additional costs and benefits stemming from the new procedure in place.  

Costs and benefits for investors 

This option would reduce costs the most for investors, with no delay in refund, no cost 
associated to  the reclaim  procedure and no foregone revenue.  Indeed, a relief at  source 
system is expected to result in even quicker processing of reclaims as treaty entitlement 
can be applied automatically, so the favourable DTT rates can be applied directly on the 
WHT payment rather than the investor having to submit a WHT refund claim. It results 
in an  estimated EUR 6.62 billion cost savings annually for investors  (see JRC study as 
explained in the baseline scenario under Chapter 5).  

Table  10:  Estimated  benefits  of  WHT  relief  procedures  –  breakdown  by  cost  driver 
(EUR bn) 
Source: DG TAXUD and JRC calculations 

Total benefits for the investor 

Option 2  

1) Decrease in foregone tax relief 

2) Reduction in incurred costs  

4.83 

0.97 

34 

 
 
3) Reduction in opportunity costs of late refunds  

Total reduction in costs 

0.82 

6.62 

Costs and benefits for tax administrations  

Costs  for  implementing  a  relief  at  source  system  for  tax  administrations  largely  stem 
from the eTRC and reporting requirements, as assessed under Option 1. Although costs 
for  Member  States  would  decrease  due  to  relief  at  source  being  applied  rather  than 
processing WHT refunds, Member States tax authorities have expressed concerns about 
the possibility of WHT tax abuse through the application of a relief at source system in 
particular with regard to Cum/Cum practices. It should be noted that with relief at source 
the  risk  of  Cum/Ex  is  almost  eliminated  as  this  system,  by  nature,  applies  the  correct 
WHT at the moment of the payment and, hence, no double refunds could take place.  

The  fact  that  the  intermediary  is  abroad,  especially  in  the  case  of  non-EU  financial 
intermediaries,  may  also  make  it  more  difficult  to  address  non-compliance  by 
intermediaries,  including  audits  and  monitoring,  despite  a  statutory  liability  framework 
being  put  in  place.  Being  able  to  recover  tax  may  also  be  more  difficult  when  the 
intermediary is not based in the same Member State. But the concern most often cited by 
Member States is that they would prefer to retain control of WHT refunds and apply their 
own  anti-abuse  tax  rules  for  risk  assessment  purposes,  which  is  more  readily  available 
under Option 3. While there will be benefits from reporting to address WHT tax abuse, 
however,  no  quantification  could  be  made  to  assess  the  extent  of  such  a  benefit.  For 
instance,  under  the  new  Finnish  relief  at  source  system,  the  average  WHT  rate  over 
dividends  paid  to  non-resident  portfolio  investors  raised  from  14.30%  to  22.73%  from 
2020 to 2021 (year in which the reporting system was introduced) even when more than 
50% of investors had applied relief at source. According to the Finnish tax administration 
it  partially  may  stem  from  the  fact  that  the  new  system  hinders  the  use  of  abusive 
practices(78). 

Costs and benefits for Financial Intermediaries  

Costs  for  financial  intermediaries  that  are  associated  to  the  eTRC  and  reporting  have 
already been discussed under Option 1. In addition, financial intermediaries would incur 
costs from setting up and running the verification system that is now undertaken  by the 
tax  authorities  of  Member  States  under  the  current  refund  systems.  Financial 
intermediaries  would  be  responsible  of  ensuring  that  the  relief  at  source  system  is 
correctly  applied.  This  would  mean  they  would  potentially  incur  greater  liabilities  than 
under  the  baseline  scenario.  However,  financial  intermediaries  would  have  all  the 
necessary data and documentation to perform the verification checks under this option.  

Under  the  relief  at  source  system,  financial  intermediaries  would  have  to  report 
information  ex-ante  to,  the  WHT  agent  in  the  source  Member  State  to  ensure  that  the 
correct  WHT  rate  is  applied.  The  reporting  mechanism  is  similar  to  Option  1  so  no 
difference  in  costs  for  intermediaries  between  Options  1  and  2  are  expected  for  this 
reporting.  

In a targeted survey of financial intermediaries regarding the new relief at source system 
in Finland, 3 respondents noted that recurring costs of implementing the Finnish system 
had  increased  by  61%  compared  to  the  existing  reporting  costs  and  that  they  incurred 
implementing costs of EUR 1.6 million. For benefits, financial intermediaries noted that 

35 

 
 
customer satisfaction improved and also that the liability risk for financial intermediaries 
had improved. However, as the system was only implemented in 2021, respondents noted 
that  it  was  difficult  to  estimate  both  the  benefits  and  recurring  costs  of  operating  the 
system.  

Macro-Economic effects for Member States  

Option 2 is expected to increase GDP the most compared to the baseline scenario with a 
total of 0.031%.  

Table 11: Impacts on GDP of Option 2 
Source: TAXUD and JRC calculations. 

Gross impact of financial costs 

Reduction in the cost of capital 

Increase in GDP 

Option 2 

0.29% 

0.09% 

0.031% 

As explained in Annex 4, a CORTAX study by the JRC, taking into account retroactive 
effects, estimates for this option even higher effects for GDP growth of Member States 
with an increase of 0.047%. However, full benefits are unlikely to be achieved given that 
some refunds would still need to be processed, for example, when relief is not possible 
due to the absence of key documents provided by the investor/financial intermediary, or 
for risk assessment reasons.  

6.1.5  Option 3 – Relief at Source System (‘RAS’) or Quick Refund System (‘QRS’) and 

within a set timeframe  

Option 3 will also encompass all the elements covered under Option 1. 

Costs and benefits for investors 

No additional costs are anticipated for investors as documents supplied by them already 
need to be supplied for WHT refunds. Investors would benefit from less foregone WHT 
refunds and quicker refunds. The time to process the refund is expected to be very short 
and so the opportunity costs would be reduced in Option 3.  

In  the  Economic  Impact  for  the  2009  Recommendation,  Member  States  noted  a 
significant  decrease  in  costs  from  switching  from  a  refund  process  to  letting  the 
intermediary  verify  the  refund.  Ireland  moved  to  a  refund  system  for  Qualified 
Intermediaries in  October 2006 that resulted in  an increase of refunds issued within 20 
days  from  23%  in  2006  under  the  old  system  to  100%.  This  allowed  the  Irish  tax 
authorities to concentrate more resources on non-QI refunds and turnaround times have 
improved from 29% processed within 20 working days in 2006 to 75% processed within 
20  working  days  in  2007.  After  the  Netherlands  introduced  refund  procedures  for 
securities held with intermediaries -the procedures allow foreign and domestic custodians 
to  file  refund  claims  on  behalf  of  their  clients  in  a  standardised  electronic  format-  it 
managed to cut down a very labour-intensive process taking 2 to 3 months on average to 
3 weeks.  

36 

 
 
 
It is estimated that the cost of reclaiming would be divided by two in Option 3 compared 
to Option 1 from 1% to 0.5% of the amount reclaimed. Similarly, due to this decrease of 
costs, it can be anticipated that only half of the investors in Option 3 would not reclaim 
the  refund,  so  2.5%  compared  to  5%  in  Option  1  and  10%  in  the  baseline  scenario 
estimate  of  the  JRC  in  Chapter  5.1.  Building  on  the  Commission  study  and  the  above 
assumptions,  the  reduction  of  costs  of  the  Quick  refund  systems  under  this  option  are 
estimated to be at EUR 5.17 billion.  

Table  12:  Estimated  benefits  of  WHT  relief  procedures  –  breakdown  by  cost  driver 
(EUR bn) 
Source: TAXUD and JRC calculations. 
Benefits for the investor 

Option 3 

1) Reduction in foregone tax relief  

2) Reduction in opportunity cost of late refunds  

3) Reduction in incurred costs  

Reduction in total costs 

3.62 

0.82 

0.73 

5.17 

These  costs  compared  to  the  estimates  outlined  for  the  baseline  scenario  described  in 
Chapter 5 would result in cost savings of 78.1% as compared to the baseline scenario. In 
terms  of  the  one  In,  one  out  approach,  the  benefits  of  a  decrease  in  paperwork  and 
streamlining  the  different  WHT  requirements  of  Member  States  would  lead  to  a 
reduction of the incurred costs of EUR 730 million per year (that is 75% of incurred costs 
of  970  million  under  Option  279).  As  the  estimates  relate  to  both  EU  and  non-EU 
investors  and  56% of the cross-border holding of securities is within the EU (see Annex 
5, table 1), the assumption is made that the cost savings is EUR 409 million annually for 
EU investors. 

Costs and benefits for tax administrations  

Costs for implementing this option have already been partly assessed under Option 1, as 
most  costs  would  be  related  to  the  reporting  under  Option  1.  However,  tax 
administrations may still need to introduce further automation to perform the checks and 
the  risk  management  in  order  to  make  the  required  assessment  within  the  short 
timeframe. Further, amendments might be necessary to accommodate the pay out of the 
refunds.  However,  as  most  refunds  will  be  done  via  the  QRS  or  relief  at  source, 
efficiency gains should arise as well, so that in the longer term less resources would be 
required, or the resources could be allocated to dealing with higher risk cases. 

If they opt for QRS, tax administrations can continue to control the refund process under 
this  option  by processing the WHT reclaims submitted by the investor, or the financial 
intermediary on behalf of the investor. Consequently, Member States tax administrations 
would  be  able  to  apply  more  easily  their  risk  assessment  as  long  as  Member  States 
already  have  their  national  systems  in  place  to  use  data  obtained  under  the  reporting 
mechanisms  as  described  under  Option  1.  While  there  are  benefits  associated  to 
reporting, however, no quantification could be made to assess the extent of such a benefit 
in countering WHT abuse specifically for Option 3. 

37 

 
 
Costs and benefits for financial intermediaries 

There will be costs associated to the implementation of the IT system and recurrent costs 
linked  to  the  reporting  obligations,  as  discussed  under  option  1.  The  system  of 
streamlining  the  information  to  be  provided  by  financial  intermediaries,  including 
digitalisation and standardisation at EU level, as discussed under option 1, is expected to 
produce considerable savings as well.  

Macro-Economic effects for Member States 

Option 3 is expected to provide a quicker reclaim process compared to options 1, but less 
(although not much more) than Option 2 Relief at Source system where no refund system 
is required. The effects on GDP are an increase in GDP of 0.025% compared to 0.031% 
under Option 2.  

Table 13: Impacts on GDP of option 3 
Source: TAXUD and JRC calculations. 

Gross impact of financial costs 

Reduction in the cost of capital 

Increase in GDP 

6.1.6  Limitations of data 

Option 3 

0.24% 

0.07% 

0.025% 

The analysis in this  chapter builds upon limited data. For the calculation of WHT costs 
for  investors  and  economic  benefits  for  Member  States,  the  Commission  studies  (as 
included in Annex 4) rely on a number of macro-economic assumptions, for example the 
proportion  of  portfolio  securities  held  by  retail  investors  that  may  not  correspond  with 
microdata like the number/amounts of reclaims on an annual basis, as described below, 
or  dividend  income  paid  to  non-resident  retail  investors  in  the  EU.  The  Commission 
study estimate only the direct holdings by retail investors, which tends to underestimate 
the amount of WHT refunds in the EU. 

Due to the non-exhaustiveness of the number of refunds handled by tax administrations, 
as collected by the Commission in 2021 for the years 2019 and 2020, the assessments of 
the  costs  were  not  based  on  these  data,  to  approximate  the  cost  for  investors  and  tax 
administrations. 

As outlined in Annex 2, the Commission undertook two targeted surveys with business 
stakeholders: to  assess the reporting  costs for business  as outlined under  Option  1; and 
the experience of Authorised Intermediaries with new relief at source system in Finland. 
Although the responses to the  reporting cost  survey were useful for qualitative aspects, 
only one stakeholder  managed to  supply quantitative data for the incremental reporting 
costs of business which was further assessed under Option 1.  

Furthermore, to approach the cost for Member States to put in place a system that would 
enable a quick refund procedure or a relief at source procedure, the costs incurred by the 
Finnish  tax  authority,  that  developed  a  system  comparable  to  TRACE,  implemented 

38 

 
 
 
since 2021, were used to approximate such a cost for other Member States, as well as the 
costs incurred to implement DAC. 

6.2  General impacts of the initiative   

6.2.1  Social and Environmental Impacts 

The  initiative  is  expected  to  have  a  positive  social  impact.  It  would  ensure  a  fairer 
taxation  of  capital  income  for  investors  by  reducing  double  taxation  and  ensuring  that 
WHT refunds are promptly paid. Furthermore, the initiative would contribute to a level 
playing field for investors by ensuring that passive income payments derived from cross-
border securities in the EU are taxed similarly to passive income payments derived from 
domestic securities. 

The various options are expected to enhance the abilities of tax authorities in the EU to 
combat tax evasion and tax avoidance, thanks to the introduction of a common reporting 
system. This information can be used for audit, risk assessment and monitoring purposes. 
In particular, reporting transaction data to  the tax authorities would mean that once the 
tax  certificates  or  other  forms  of  WHT  refund  can  be  directly  linked  to  the  underlying 
distribution,  it  would  be  impossible  to  make  multiple  repayments  under  a  single 
distribution as in the Cum/Ex scandals. Data reporting would also help tax authorities to 
identify  unusual  transaction  flows  for  risk  assessment  purposes  to  combat  Cum/Cum 
abuses like dividend arbitrage.  

The proposal would have a small positive impact for the environment given the expected 
reduction  in  paper-based  refund  process  through  the  uses  of  a  common  tax  residence 
digital  certificate  and  automated  refund  requests.  Therefore,  the  current  initiative  is 
consistent  with  the  fulfilment  of  the  climate-neutrality  objective  as  requested  by  the 
European Climate Law. 

6.2.2  Fundamental rights 

Fundamental rights, in particular the requirements concerning the protection of personal 
data  under  the  General  Data  Protection  Regulation  (‘GDPR’),  would  be  safeguarded. 
Investors in possession of the electronic tax residence certificate, whether included in a 
digital  wallet  or  kept  in  dedicated  depository,  would  decide  themselves  whether  their 
personal data would be provided to their financial intermediary to submit a WHT reclaim 
to a WHT agent or tax authority in the source Member State.   

The  exchange  of  personal  data,  as  contained  in  the  common  reporting  and  standard 
refund  procedures  of  option  1,  between  the  investor  and  the  WHT  agent  or  the  tax 
authority  in  the  source  Member  State  would  only  be  transmitted  for  the  purposes  of 
ensuring the information reporting obligations of the financial intermediaries and the tax 
obligations of the withholding tax agent with respect to the refund to be reclaimed. The 
amount of personal data to be transmitted will be limited to what is necessary  to detect 
underreporting, non-reporting or tax abuse, in line with the GDPR requirements.   

7  HOW DO THE OPTIONS COMPARE? 
This  chapter  makes  a  comparison  in  light  of  the  impacts  identified.  The  options  are 
assessed  against  the  three  core  criteria  of  effectiveness,  efficiency,  and  coherence.  The 
proportionality of the options is also part of this chapter.  

39 

 
7.1  Effectiveness  

The  specific  objectives  against  which  the  effectiveness  is  evaluated  are  as  follows:  to 
achieve more effective WHT procedures and to improve Member States´ capabilities to 
fight  against  tax  abuse.  On  making  WHT  procedures  more  efficient,  the  following 
criteria will be assessed: (1) shorten time for refunding excess tax withheld; (2) simplify 
the reclaim procedures; (3) promote digitalisation and harmonised procedures; (4) ensure 
equal access to DTT benefits for portfolio investors similar to what direct investors have. 
These criteria would have an effect to lower tax-related costs for cross-border investors 
and  facilitate  the  cross-border  investments  hence  attracting  investment  to  the  European 
market. 

On  improving  the  ability  of  Member  States  to  detect  and  counter  cross-border  tax 
fraud,  -avoidance  and  -evasion,  the  following  elements  to  check  are:  (1)  tools  for 
Member States to obtain more information to tackle tax fraud through a higher level of 
transparency, and (2) the ability to avoid future tax losses.  

It is worth noting again that both objectives – improving efficiency and preventing fraud 
– have the same importance within the initiative: greater efficiency should help to reduce 
the period within which the investor will receive his/her taxes back, which should benefit 
all  stakeholders;  while  fighting  abuse  will  be  achieved  through  greater  transparency, 
which  will  improve  compliance  and  provide  tax  administrations  with  better  insight  to 
assess the final amount that should be refunded. The weight of each criteria reflects the 
fact that each of these two objectives has the same importance: 

- 

 Each of the four criteria under making WHT procedures more efficient (table 14 
below)  is  scored  from  -3  to  +3  (-3  indicating  the  most  negative  impact,  +3  the 
most positive impact, 0 is the baseline scenario).  

-  The  score  of  the  two  criteria  related  to  tackling  tax  fraud  (table  15)  will  range 

from -6 to +6 instead. 

Note  that  for  scoring  purposes,  during  the  whole  chapter  7,  option  3  is  taking  into 
consideration mainly the Quick refund system as it is the procedure that Member States 
need  to  implement  to  comply  with  minimum  standards  of  efficiency  and  security.  In 
addition, even those Member States opting for Relief at Source need to have in place a 
refund  procedure  as  a  back-up  system,  which  tends  to  be  quick  given  the  reporting 
obligations to be put in place. 

Table 14: Efficient WHT procedures 
Source: TAXUD  

Criteria  

Option 1  

Option 2  

Option 3  

Speed up refunding time  

Simplify refund procedures 

Promote digitalization and harmonized 
procedures 

Equal access to treaty benefits 

+1 

+2 

+2 

+1 

+3 

+3 

+3 

+3 

+2.5 

+2.5 

+3 

+3 

40 

 
OVERALL SCORE 

6 

12 

11 

Table 15: Tackle tax fraud  
Source: TAXUD  
Criteria 

Tools to obtain more information to tackle tax fraud 

Ability to avoid future tax losses 

OVERALL SCORE 

Option 1 

Option 2 

Option 3 

+6 

+6 

12 

+6 

+3 

9 

+6 

+6 

12 

As seen above, both options 2 and 3 perform similarly in terms of efficiency (nonetheless 
option 2 performs slightly  better, that is  why they  score almost  equal: 12 vs 11), while 
they are more different in terms of the second objective, fighting against tax fraud (9 vs 
12). 

Option  1  entails  introducing  an  eTRC  across  Member  States,  a  common  standard  of 
reporting for the actors in the financial chain and the possibility to file bulk requests. The 
reporting  obligations  provide  Member  States’  tax  administrations  with  the  information 
needed to properly assess whether the benefits of the tax treaties should be granted and to 
check that taxes due are paid. Gathering relevant information is crucial to fight tax abuse 
and to achieve swifter refund procedures. In addition, it will also be possible for the tax 
administrations  to  better  perform  risk  management  with  regard  to  its  taxpayers  and 
resources  could  be  allocated  to  the  high-risk  cases.  Having  in  place  standard  reporting 
obligations,  common  due  diligence  procedures  with  proper  liability  allocation  and  bulk 
requests  may  speed  up  and  simplify  as  well  to  certain  extent  the  existing  WHT 
procedures,  granting better access  to  treaty benefits. Therefore, option 1  scores slightly 
above the baseline scenario but lower than option 2 or 3 in terms both of efficiency and 
tackling tax abuse. 

Option  2  consists  of  implementing  at  EU  level  a  Relief  at  Source  system  (RAS)  in 
addition  to  the  main  elements  included  in  option  1(80).  RAS  implies  that  tax 
administrations would only be  able to  perform  the checks once the payments are done, 
which makes the system less effective in terms of combating tax fraud and tax abuse than 
option 3, under which Member States have the possibility to apply a QRS. Based on the 
abovementioned reasons, some Member States, severely affected by Cum/Ex scandal, are 
more reluctant to implement a RAS system where the control ex-ante is to be outsourced 
with financial intermediaries. This makes Member States perceive the QRS more secure 
in comparative terms. 

Regardless  of  these  shortcomings,  the  procedure  itself  would  eliminate  the  existing 
barriers  to  the  free  movement  of  capital  regarding  the  cross-border  investments  by  EU 
and non-EU investors. Therefore, option 2 performs the best in terms of the objective of 
making more efficient WHT. 

Under  Option  3  Member  States  can  implement  a  quick  refund  system,  but  can  also 
implement RAS like in option 2 if they are comfortable to do so.  

41 

 
 
 
 
 
The QRS removes existing barriers to cross-border investment and ensures that investors 
have proper access to DTT benefits. Therefore, it improves the functioning of the capital 
market union. Consequently, even when it scores slightly less than option 2 in terms of 
efficiency of the procedures (assuming that not all Member States will opt for RAS under 
option  3),  option  3  should  as  well  address  the  objective  of  making  WHT  reclaim 
procedures more efficient by reducing the time period of the refund and simplifying the 
procedure. 

On  the  other  hand,  the  objective  to  improve  the  capabilities  of  the  Members  States  to 
fight  against  tax  abuse  and  to  prevent  fraudulent  tax  schemes  in  the  future  is  best 
achieved under option 3 than under option 2. To the extent that Member States apply a 
QRS rather than RAS, the checks by the tax administrations will be ex ante, which is an 
advantage in terms of fighting against tax abuse compared to systems where the checks 
are done ex post such as relief at source systems.  

Therefore, the main difference between option 2 and option 3 is that, under option 3, tax 
administrations  apply  QRS  still  have  the  control  as  checks  would  take  place  ex  ante 
before paying out to the investor the tax withheld in excess. Under option 2, the checks 
to be performed by the tax administrations  would only be done ex post, after the WHT 
agent has withheld the lower WHT and paid the amount to the investor. Hence, in terms 
of the fight against tax abuse, the advantages of option 3 outweighs option 2, based on 
the possibility of maintaining control on the reclaim process. However, option 2 achieves 
a better outcome in terms of efficient WHT procedures. 

7.2 

 Cost effectiveness 

The efficiency (effectiveness in relation to cost) scores from -3 to +3 (-3 indicating the 
most negative impact, +3 indicating the most positive impact) based on the assessment of 
the options. 

Table 16: Cost effectiveness 
Source: TAXUD  

Economic Impact 

Option 1 

Option 2 

Option 3 

Costs and benefits for investors 

Costs and benefits for financial intermediaries 

Costs and benefits for tax administrations 

Costs and macro-economic benefits for Member States 

OVERALL SCORE 

+1.5 

-1 

+3 

+1 

4.5 

+3 

+1 

+2 

+3 

9 

+2.5 

0 

+3 

+2 

7.5 

Option  1  mainly  brings  the  eTRC,  enhanced  reporting  obligations  throughout  the 
financial  chain  and  bulk  requests.  Investors  would  not  have  additional  costs  as  they 
already  must  comply  with  EU  AML(KYC)  and  DAC2/CRS  obligations  and  enjoy  the 
benefits  of  a  digital  TRC;  it  entails  more  efficiency  for  investors  than  the  baseline 
scenario.  The  intermediaries  also  have  benefits  from  the  digitalisation  and  streamlining 
of  reporting,  but  not  to  an  extent  that  matches  the  implementation  costs,  which  makes 

42 

 
 
option 1 the least beneficial in terms of cost-benefit analysis compared with options 2 or 
3. The tax administrations end up in a much better position than today, especially when it 
comes to access to relevant, updated data and in a format that is easy to use. This is in the 
end positive for the Member States as well to some extent. The main beneficiary from the 
perspective of efficiency is the tax administrations. 

jurisdictions  and 

Option 2 consists of implementing the RAS across the EU. This increases the value for 
the  investors  based  on  speed  of  obtaining  the  correct  amount  alone.  For  the 
intermediaries, option 2 entails establishing a simple and quick system that is in place in 
tax  barriers  benefiting  market  growth 
multiple 
accordingly. The downside is the cost for operating the relief system as such. The option 
is  still  quite  beneficial  to  tax  administrations,  but  they  will  be  faced  with  costs  for 
conducting  checks  and  audits  on the intermediaries. Overall, this is  the best  solution  to 
investors  and  intermediaries  from  an  efficiency  perspective  as  well  as  from  a  macro-
economic analysis point of view. 

that  removes 

Option 3 implies a choice between a QRS and/or a RAS. Compared to option 2 and for 
the Member States that would choose the QRS, it is slightly less positive than option 2 
from  the  point  of  view  of  the  investors,  mainly  because  it  is  not  as  quick  as  the 
immediate relief. Here the intermediaries do not face the cost  of operating the process, 
but  they  still  need  to  afford  the  implementing  cost  for  complying  with  reporting 
obligations  and  due  diligence  procedures.  The  tax  administration  will  be  faced  with 
operating the system, but do not have to do costly audits for validation purposes, while 
they  also  maintain  control  of  the  relief  payments.  This  a  good  solution  for  tax 
administrations  that  would  incur  in  implementing  costs  notably  outweighed  by  the 
advantages achieved in fighting against fraud.  

7.3  Coherence with general objectives of policy initiatives and EU law 

The  initiative  responds  to  core  EU  strategies  to  fight  against  tax  avoidance  and  tax 
evasion, and reinforce the functioning of the capital market  union,  to  the benefit of the 
single market. Each option is coherent with these EU priorities to different extent: 

Table 17: Coherence 
Source: TAXUD 

Coherence 

Option 1 

Option 2 

Option 3 

Fighting against tax abuse 

Reinforcing CMU 

OVERALL SCORE 

+2.5 

+1 

3.5 

+2 

+3 

5 

+2.5 

+2.5 

5 

The introduction of a common  eTRC helps to implement a digitalised and standardised 
system regarding the request and issuance of tax certificates. The reporting obligations of 
option 1 enable the tax administrations to receive information about the financial chain 
when dividends are paid out. These measures are  major progress to fight  tax abuse and 
fraudulent tax arrangements. Although the measures are already a huge step forward and 
are  an  improvement  compared  to  the  current  situation  in  terms  of  effectiveness  and 
fighting  against  tax  fraud,  the  ultimate  goal  is  to  reinforce  a  Capital  Markets  Union 
without  obstacles  whereby  there  is  a  common  system  for  a  swift  refund  of  WHT.  This 

43 

 
 
aim can only be reached when measures like those proposed in option 2 or option 3 are 
additionally implemented in the EU.  

In addition, the requirements of the GDPR will be met. Regardless which technical basis 
will  be  chosen  for  the  eTRC,  the  persons  concerned  decide  themselves  whether  their 
personal data would be provided to their financial intermediary to submit a WHT reclaim 
to a WHT agent or tax authority in the source Member State. On the reporting obligations 
of  all  options,  the  information  will  only  be  transmitted  for  the  purpose  of  ensuring  the 
fulfilment of tax obligations. That means that the personal data will be transmitted only 
to the extent that is necessary to detect underreporting, non-reporting or tax abuse in line 
with GDPR requirements.  

7.4  Proportionality 

Proportionality refers to the extent to which an initiative is suitable or appropriate for the 
purpose  of  achieving  the  desired  objectives,  does  not  go  beyond  what  is  necessary  to 
achieve these objectives and limits the scope to those aspects the Member States cannot 
achieve by their own. The options proposed meet the requirements of proportionality by 
both  improving  WHT  reclaim  procedures  and  preventing  tax  abuse.  Due  to  the 
fragmentation  and  problems  identified  in  EU  WHT  reclaim  systems,  in  particular  their 
impact  on  cross-border  investors  and  financial  intermediaries,  an  EU  intervention  is 
considered necessary.  

Table 18: Proportionality 
Source: TAXUD 

Proportionality 

Option 1 

Option 2 

Option 3 

Simplicity of the initiative compared with its objectives 

OVERALL SCORE 

+1 

1 

+2 

2 

+2 

2 

Under option 1, implementation costs of national IT-systems will occur when the eTRC 
is  implemented.  The  implementing  and  recurring  costs  of  the  system  are  acceptable, 
taking  into  account  the  benefits.  A  current  fragmented  system  with  partly  paper-based 
documents is replaced by a completely digital system. It will increase the digitalisation of 
administrative  processes  by  Member  States  and  achieve  efficiency  gains,  also  enabling 
the intermediaries to improve their processes. This is one step forward to achieve more 
efficient WHT procedures.  

The implementation of additional reporting obligations proposed under option 1 imposes 
additional administrative burden and costs for financial intermediaries as the reporting of 
information must be extended to include more granular data, including the identity of the 
beneficiary.  These  costs  are,  nonetheless,  outweighed  by  the  positive  impact  the 
information received by tax administration has on the improvement of WHT procedures. 
However, under this option, financial intermediaries do not see a clear return in the form 
of  a  harmonised  system.  On  the  contrary,  option  3  is  setting  up  at  minimum  a 
standardised  quick  WHT  refund  system  for  the  sake  of  investors,  keeping  similar 
reporting obligations than under option 1. Similarly, under option 2, whereby the main 
burden is  borne  by  financial intermediaries,  a common system  is  established as  well to 
get relief at source. 

44 

 
 
All in all, all the options entail a faster and smoother refund/relief system to  a different 
extent,  and  they  all  pursue  the  aim  of  preventing  future  fraudulent  tax  schemes  which 
were  responsible  in  the  past  for  the  huge  losses  of  tax  revenue.  In  light  of  this,  the 
additional  obligations  embedded  in  each  option  do  not  go  beyond  what  is  necessary  to 
achieve  efficiency and fair tax systems.  Therefore, the proposed options are deemed as 
proportional.  

8  Preferred option 
Based  on  the  outcome  of  the  previous  section,  where  a  detailed  comparison  was  done 
across all the options, the scores of each criterion and the overall assessment of the three 
options are shown in the table below: 

Table 19: Overall assessment 
Source: TAXUD 

Criteria  

Option 1  

Option 2  

Option 3  

Speed up refunding time 

Simplify refund procedures 

Promote digitalization and harmonized procedures 

Equal access to treaty benefits 

Tools to obtain more information to tackle tax fraud 

Ability to avoid future tax losses 

Costs and benefits for investors 

Costs and benefits for financial intermediaries 

Costs and benefits for tax administrations 

Costs and macro-economic benefits for Member 
States 

Fighting against tax abuse 

Creating a truly Single Market (incl. CMU) 

Simplicity of the initiative compared with its 
objectives 

OVERALL SCORE 

+1 

+2 

+2 

+1 

+6 

+6 

+1.5 

-1 

+3 

+1 

+2.5 

+1 

+1 

27 

+3 

+3 

+3 

+3 

+6 

+3 

+3 

+1 

+2 

+3 

+2 

+3 

+2 

37 

+2.5 

+2.5 

+3 

+3 

+6 

+6 

+2.5 

0 

+3 

+2 

+2.5 

+2.5 

+2 

37.5 

Therefore, the above analysis indicates that option 3, which requires to implement either 
a Quick refund system (QRS) or/and Relief at Source (RAS), is the most appropriate to 
meet the objectives of the intervention. Overall, we can conclude that setting up a QRS 

45 

 
 
or/and a RAS, is highly effective to tackle the problems identified in the EU in terms of 
speed, simpler processes and more digitalised procedures.  

At the same time, option 3 is safer as it gives Member States the option to retain an ex-
ante  control.  Under  QRS,  refunds  take  place  only  after  the  dividend/interest  income 
payments  have  reached  the  beneficiary  which  provides  more  control  to  the  tax 
administrations in terms of identifying potential abusive cases. This is especially relevant 
for Member States that have been heavily hit by Cum/Cum and Cum/Ex practices during 
recent  years  and  that,  because  of  political  reasons,  might  be  more  reluctant  to  adopt  a 
RAS system in the short-term. Some other Member States may decide to go for a RAS, 
with the advantages it entails in terms of timing for the taxpayer. 

In terms of cost-benefit ratio, a choice to implement QRS or/and RAS represents  a fair 
compromise solution between stakeholders, as financial intermediaries, in general, prefer 
a relief at  source system and some Member States will rather go for a system whereby 
they  can  retain  control  over  refunds.  For  investors,  the  QRS  entails  similar  advantages 
compared  to  a  RAS  in  terms  of  reducing  compliance  costs  as  the  submission  of  the 
request will be done on their behalf. 

In  addition,  agreeing  on  a  QRS  across  the  EU  and/or  RAS  for  those  Member  States 
willing to, is coherent with policies currently been undertaken at EU level. This initiative 
complements the Unshell proposal (e.g. by including relevant information for “Unshell” 
in the common eTRC), DAC2 (e.g. by providing for a greater level of granularity when it 
comes to the reporting of financial income, the reporting of WHT levied and refunded, 
and  by  ensuring  that  all  relevant  WHT  agents/securities  are  included  within  its  scope) 
and  Shareholders  Rights  Directive  (81)  (e.g.  by  sharing  the  same  aim  of  providing 
transparency  in  relation  to  the  final  investor).  Implementing  a  QRS  and/or  RAS  is 
consistent as well with the Commission’s priorities to combat tax abuse and strive for a 
strong capital markets union.  

Concerning data protection, the initiative requires the processing of personal  data since 
the  investors  can  be  natural  persons.  However,  this  can  be  considered  justified  as  the 
proposed  measures  are  proportionate  and  necessary  to  fight  against  tax  abuse,  the 
personal data processing is limited to what is necessary to achieve this objective and the 
initiative  will  fully  comply  also  in  other  respects  with  the  requirements  of  EU  data 
protection law/GDPR.  

The principle of subsidiarity is met both by QRS or RAS as they both  clearly offer the 
EU added value by introducing an effective and, at the same time, secure system across 
all Member States. The public consultation made it clear that EU action was needed, with 
94% of positive replies, in order to harmonise the patchwork of current systems in place. 
Fragmentation  only  drives  compliance  costs  upwards  both  for  investors  and  financial 
intermediaries. 

It is also important to emphasise that the preferred option is proportionate and does not 
go  beyond  what  is  needed  to  achieve  the  goals.  The  overall  balance  is  positive:  the 
expected  return  in  terms  of  effectiveness  for  investors,  financial  intermediaries  and  tax 
administrations are higher than the estimated implementing costs.  

Finally,  Option  3  complies  with  the  objectives  of  the  initiative  and  is  also  the  most 
feasible to achieve in the short-term. It is the also the option that should have the highest 
acceptance rate among Member States.  

46 

 
One in one out approach 

In terms of the ‘one in,  one out’ approach, the benefits of a decrease in  paperwork and 
streamlining  the  reporting  WHT  requirements  of  Member  States  would  lead  to  an 
estimated  reduction  of  the  incurred  costs  of  EUR  409  million  per  year  for  private 
stakeholders and a reduction of the recurring costs of 13,5 million per year for financial 
intermediaries;  on  the  other  hand,  reporting  obligations  and  streamlining  procedures 
would  lead  to  implementing  costs  of  EUR  75.9 million  and  recurring  costs  of  EUR  13 
million per year subsequently. 

9  How will actual impacts be monitored and evaluated 

9.1 

Indicators for monitoring and evaluation 

Monitoring  should  act  as  an  incentive  to  properly  implement  the  obligations  under  the 
proposed  framework  for  the  main  actors  in  the  current  intervention.  Option  3  is  the 
preferred option. The table below gives an overview of the objectives, the indicators to 
measure whether they will be achieved under option 3, and the tool for monitoring them: 

Table 20: Monitoring and evaluation framework 
Source: TAXUD 

General Objective 

Operational objective  

Indicators 

Facilitating 
cross-
border investment by 
giving 
taxpayers 
proper access to DTT 
benefits 

time 

Shorten 
for 
refunding  excess  tax 
withheld  

Whether  payment  days 
for  WHT 
reclaims  are  compliant  with  pre-defined 
payment days in the proposal and, where 
payment 
appropriate, 
penalties  are  paid  to  investors  for  late 
refund payments  

interest 

late 

financial 
Ensuring 
intermediaries  adhere 
to  the  customer  due 
diligence 
requirements 
and 
reporting  obligations 
financial 
their 
of 
intermediaries 

Monitoring  activities  of  the  Member 
State 
to  ensure  compliance  of  EU 
financial intermediaries (by the residence 
and  non-EU 
country) 
and 
financial 
(by  Member 
intermediaries 
State where they are registered)  

source 

Preventing  tax  abuse 
in the field of WHT 

Prevention 
abuse 

of 

tax 

the 

Annual  assessment  by 
source 
Member  State  on  the  effectiveness  of 
data  reported  by 
intermediaries/WHT 
agents  to  detect  and  prevent  tax  abuse. 
The  assessment  will  include  the  use  and 
(number  and  amounts)  of 
benefits 
reported  data  by  financial  intermediaries 
for  detecting  and  combatting  WHT  tax 
abuse (Cum/Ex and Cum/Cum).  

Measurement tools 

to  be 
Annual  data 
supplied 
the 
Commission  by  source 
Member State 

to 

of 

to  be 
report 
Annual 
supplied  by  Member 
State 
residence, 
source  and  registration 
of 
financial 
intermediary. 

the 

Annual assessment to be 
the 
supplied 
Commission 
the 
source Member State. 

by 

to 

Equip  Member  States  Correctness 

and 

completeness 

of  Annual assessment to be 

47 

 
 
tax 
administrations 
with tools to deal with 
refund/relief at source 
procedures in a secure 
and  being 
manner 
that  due 
confident 
taxes have been paid 

Effect  of  the  proposal 
on the economy 

Economic benefits  

reported 

financial 
information 
by 
in  other 
intermediaries/WHT  agents 
Member  States  to  the  source  Member 
State tax authority  

Assessment by  the source Member  State 
of 
liability 
of 
allocation rules at national level 

enforceability 

the 

to 

supplied 
Commission 
source Member State.   

by 

the 
the 

An assessment of the economic effects of 
Option 3 on GDP, investment, wages and 
employment.  This 
assessment  will 
include the data source and methodology 
used  in  the  JRC  studies  in  Annex  4  of 
this  impact  assessment,  including  the 
CPIS security cross-border survey  

An annual assessment to 
be  performed  by 
the 
Commission  

9.2  Monitoring and reporting  

Data requirements for monitoring purposes under option 3 (the following data should be 
reported to the Commission on an annual basis by Member States): 

- 

eTRC: details on the implementation and issuance of the eTRC to investors by the 
Member State of residence of the investor.   

-  Enhanced transparency: assessments by the Member State of the compliance of their 
financial intermediaries with their reporting obligations, in particular in terms of the 
quality  and  timeliness  of  the  data  exchanged  with  the  tax  authorities  of  the  source 
Member States. 

-  Quality and completeness of information reported to the source Member States: the 
number of WHT refunds per Member State of the financial intermediary that cannot 
be  refunded  within  the  40  days  due  to  incomplete  or  poor-quality  reporting  by  a 
financial intermediary, including the reclaims.  

-  Liability:  Member  States  should  collect  information  on  number  of  liability  actions 
against financial intermediaries (resident and non-resident) subject to the proposal– 
opened, closed and pending liability cases. 

-  Enforcement  activities:  The  type  and  number  of  enforcement  activities  undertaken 
by  Member  States  to  ensure  that  their  financial  intermediaries  comply  with  the 
customer due diligence and reporting obligations; and statistics on the registration of 
both EU and Non-EU authorised intermediaries as well as de-listings.  

-  Sanctions:  the  number  and  value  of  sanctions  imposed  by  Member  States  on  their 
financial  intermediaries  for  failing  to  comply  with  customer  due  diligence  and 
reporting obligations under the proposal. 

-  Payment deadlines: The number of days that it takes to make a WHT refund by the 
source  Member  State  –  WHT  refunds  made  within  40  days  and  beyond  40  days. 
Reasons  for  WHT  dividend  payments  outside  the  40  days  should  be  reported 

48 

 
 
including the reasons for i.e., potential tax abuse cases and incomplete information. 
Further,  statistics  on  the  number  and  amount  of  interest  payment  penalties  paid  to 
investors  where  the  Member  State  has  failed,  without  a  valid  reason,  to  refund  the 
WHT within the payment deadlines.  

-  Relief at source: The volume of dividends/interests paid with the correct WHT rate 
applied  at  the  moment  of  payment  in  relation  to  the  whole  amount  of 
dividends/interests paid to non-resident portfolio investors. 

-  Reported  information:  The  use  of  data  reported  to  the  tax  authority  of  the  source 
Member State for risk assessment purposes – the number and amount of WHT abuse 
detected due to information received. 

9.3  Monitoring and evaluation by the Commission  

The data collected under 9.2 will be published by the Commission on annual basis in a 
report. The economic effects of the proposal will also be assessed in the report. Member 
States and the Commission  will examine and  evaluate the  functioning  of  this Directive 
every 5 years based on the data provided. A report on the evaluation of the Directive will 
be submitted to the European Council. 

Member  States  will  be  asked  to  communicate  to  the  Commission  any  relevant 
information  necessary  for  the  monitoring  and  evaluation  of  the  Directive  in  improving 
procedures in the European Union to reduce double taxation related to withholding taxes 
as  well  combating  tax  abuse  of  withholding  tax  systems  in  the  European  Union. 

49 

 
Annex 1: Procedural Information 

1) 

LEAD DG, AGENDA PLANNING AND WORK PROGRAMME  

The  proposal  for  the  New  EU  common  system  for  the  avoidance  of  double  taxation 
and prevention of tax abuse in the area of withholding taxes was prepared under the 
lead of Directorate-General for Taxation and Customs Union (DG TAXUD) in close 
collaboration with Directorate General for Financial Stability, Financial Services and 
Capital Markets Union (DG FISMA). 

In the Agenda Planning of the European Commission, the project is referred to under 
item  PLAN/2021/10794.  The  2020  Commission  ‘Action  Plan  for  Fair  and  Simple 
Taxation  supporting  the  recovery  strategy’  includes  this  project  in  the  action  eight 
under  the  header  to  increase  the  efficiency  of  tax  payment  procedures  during 
2022/2023.  

2) 

ORGANISATION AND TIMING  

Work on the preparation and fact-finding phase of this policy initiative started in June 
2020.  An  Inter-service  Group  set  up  in  June  2021  assisted  DG  TAXUD  in  the 
preparation  of  this  impact  assessment  report.  The  Inter-service  Group  included 
colleagues  from  the  following  Commission  services:  DG  FISMA,  JRC,  DG  ECFIN, 
DG BUDG, DG COMP, DG GROW, DG JUST, OLAF, DG TRADE, DG CNECT, 
DG  DIGIT,  the  Commission's  Legal  Service  and  the  Commission's  Secretariat-
General.  

The  Inter-service  Group  met  on  four  occasions  between  June  2021  and  November 
2022 (24 June 2021, 14  June 2022,  6 October 2022 and 8 November 2022). During 
the first Inter-service Group meeting an overview of the initiative was shared with the 
participants and the Inception Impact Assessment coupled with the problem tree paper 
and  the  consultation  strategy  document  were  discussed.  Introduction,  problem 
statement, objectives and the need of EU action of the initiative were covered by the 
second Inter-service Group meeting held in June 2022. In October 2022, the available 
policy  options  and  their  impact  were  addressed  during  the  third  Inter-service  Group 
meeting. The last meeting of the Inter-service Group took place on 8 November 2022 
whereby the draft of the entire Impact Assessment was discussed before submitting it 
to  the  RSB.  After  a  negative  opinion  of  the  RSB  a  revised  version  of  the  Impact 
Assessment  was  discussed  on  7  March  2023.  At  each  occasion,  the  members  of  the 
Inter-service  Group  were  given  the  opportunity  to  provide  comments  orally  and  in 
writing on the draft versions of the documents presented.  

3) 

CONSULTATION OF THE REGULATORY SCRUTINY BOARD  

The  draft  impact  assessment  report  was  submitted  to  the  Regulatory  Scrutiny  Board 
on 16 November 2022. The impact assessment report was reviewed by the Regulatory 
Scrutiny  Board  on  14  December  2022.  The  RSB  delivered  a  negative  opinion.  The 
revisions introduced in response to the first RSB opinion are summarised in the table 
below.  

50 

 
 
RSB’s requests for improvement 

Changes done in the IA 

Summary of findings 
is  unclear  on  the 
(1)  The  report 
balanced  weight  of  the  two  specific 
objectives  and  how  this  is  carried 
through the analysis 

(2) The report does not provide a clear 
description  of  the  content,  functioning 
and complementarity of the options. It 
does not identify and assess all relevant 
options upfront 

51 

Both  objectives  -  improving  efficiency  and  fighting 
tax  abuse  –  are  of  equal  importance.  The  revised 
version reflects this fact by stating that both objectives 
should  be  addressed  by  the  initiative.  Current  refund 
procedures are found to be inefficient, which is costly 
and  detrimental 
(investors, 
financial  intermediaries,  and  tax  administrations)  and 
weighs  on  the  overall  investment  climate  in  the  EU. 
At  the  same  time,  WHT  refund  procedures  have 
proven  vulnerable  to  fraud,  which  led  to  severe  tax 
revenue losses in some Member States.  

to  all  stakeholders 

Therefore, to cater for the needs of Member States and 
their  tax  administrations  as  well  as  investors  and 
financial  intermediaries,  both  objectives  need  to  be 
met. A paragraph at the end of chapter 4 is included to 
reflect this reasoning. 

The  revised  report  includes  an  explanation  as  well 
about  the  equal  importance  of  both  objectives  in 
chapter  7  before  scoring  each  option.  The  objectives 
have  the  same  importance  in  terms  of  assessing  the 
effectiveness  of  the  option:  greater  efficiency  should 
help  to  reduce  the  period  within  which  the  investor 
will  receive  his/her  taxes  back,  which  should  benefit 
all stakeholders; while fighting abuse will be achieved 
through  greater  transparency,  which  will  improve 
compliance  and  provide  tax  administrations  with  a 
more  robust  insight  to  assess  the  final  amount  that 
should be refunded 

Chapter 5 has been redrafted. The presentation of the 
options is amended and reflects now three options: 

1.  Common  EU  digital  tax  residence  certificate 

(eTRC) + common reporting  

2.  Relief  at  Source  (RAS)  also  incorporating 

option 1 

3.  Relief  at  Source  (RAS)  or  Quick  refund 
frame  also 
(QRS)  with  set-time 

system 
incorporating option 1. 

We  propose  to  introduce  a  clear  overview  of  the 
in  a  more  structured  and 
elements  per  option 
streamlined way and how each of them interacts with 

 
 
 
  
existing procedures in place.  

In addition, a check-chart is added as an introduction 
in chapter 5. It summarizes the main elements for each 
option  and  explains  the  cumulative  nature  of  the 
options  as  each  one  builds  on  the  elements  of  the 
previous  one  with  some  specificities.  All  these 
elements are further explained under each option 

(3) The report does not provide a clear 
and  complete  picture  of  the  costs  and 
benefits  of  each  option.  It  does  not 
assess  the  impacts  of  the  preferred 
combination of options 

The impact assessment has been revised to provide for 
a  more  comprehensive  overview  of  the  costs  and 
benefits.  A  summary  chart  is  added  and  reflects  the 
net  cost/benefits  of  each  current  option  for  each 
stakeholder. 

objectives, 

What to improve 
(1) The report should be clear whether 
i.e. 
specific 
two 
the 
improving 
the  efficiency  of  WHT 
procedures  and  fighting  tax  abuse, 
have  equal  weight.  If  both  are  equally 
important, 
and 
comparison  of  options 
should  be 
revised accordingly 

assessment 

the 

of 

content 

(2)  The  report  should  provide  a  clear 
and 
the 
description 
functioning  of  the  options.  It  should 
clarify  to  what  extent  the  options 
contain  common  elements  and  to what 
extent they are cumulative or mutually 
exclusive.  It  should  provide  a  clear 
overview  of  the  elements  included  in 
each  option  in  a  more  structured  and 
streamlined way and how each of them 
interacts  with  existing  procedures  in 
place.  In  particular,  it  should  provide 
more  information  on  the  common  EU 
digital tax residence certificate (eTRC) 
and  justify  why  it  is  considered  as  a 
self-standing  option.  It  should  also 
provide  further  information  on  the 
additional  reporting  obligations  and 
explain  what  obligations  would  a  due 
diligence  procedure  imply,  providing 
details 
content 
regards 
(information  to  be  provided)  and  the 
the 
process 
information be provided) 

(how  and  when  will 

the 

as 

52 

Both  objectives  -  improving  the  efficiency  of  WHT 
procedures  and  fighting  tax  abuse  –  are  of  equal 
importance and should be addressed by the initiative. 
This  will  be  now  clarified 
in  chapter  4  on 
“Objectives”,  where  a  paragraph  will  be  added  to 
address this point.  In chapter 7, the comparison of the 
option  will  be 
the  equal 
importance  of  both  objectives.  In  particular,  the 
scoring of the options  will  be reviewed to  give equal 
weight to each objective 

reviewed 

reflect 

to 

The original report included four options: (1) “setting 
up of a common EU digital Tax Residency Certificate 
(TRC)”;  (2)  “enhanced  transparency  and  streamlined 
standard  refund  procedures”;  (3)  “Quick  refund 
system”  (QRS);  and  (4)  “relief  at  source  (RAS) 
system”.  Those  options  were  partly  cumulative  and 
could be combined.  

We have reviewed the options. We suggest to remove 
the  “setting  up  of  a  common  EU  digital  TRC”  as  a 
standalone option, as it does only partially address the 
two objectives of the initiatives.  It is  however a  very 
important  step  in  making  WHT  procedures  more 
efficient  and robust against fraud.  It will therefore be 
part  of  all  the  options  presented  in  the  impact 
assessment.  We  also  propose  to  have  a  combined 
option where Member States can choose to implement 
the Quick refund system or the relief at source system.  
Chapter 5 will be amended to present the three options 
already stated above (see our response to B(2)). 

Under  option  1,  in  chapter  5,  a  summary  will  be 
presented explaining the due diligence procedure. It is 
specified that the financial intermediary closest to the 
investor will file the request for the reclaim on behalf 

 
of the investor. It will gather the data from its clients 
and  will  perform  the  due  diligence  on  this  data  (i.e. 
checks  and  verification  of  the  validity  of  these  data) 
using information at its disposal.  

On  reporting  obligations,  the  revised  report  provides 
under  chapter  5  an  overview  of  who  should  report, 
what  information,  how it  will be provided  and  when. 
In annex 11, we present  in more details what kind of 
data  is  reported,  by  whom  and  how  the  reporting  is 
envisaged (schematic figure is included for the sake of 
clarification). A distinction is made between financial 
intermediaries  that  are  only  performing  a  role  in  the 
chain and those intermediaries that provide services to 
the taxpayer/investor (closest financial intermediary). 

We  propose  to  revise  the  presentation  of  the  options. 
Option 3 now covers the requirement for MS to either 
introduce a Quick refund system or relief at source.  

The relief at source is analysed as a stand-alone option 
given that it was announced by the Commission in its 
“Action  Plan  for  fair  and  simple  taxation  supporting 
the  recovery”  and  in  the  “Capital  Markets  Union  2.0 
Action Plan” as a possible way forward to improve the 
WHT procedures.  

Moreover, the public consultation run in 2022 on this 
initiative,  identified  the  relief  at  source  as  the 
preferred solution to address current inefficiencies on 
WHT  procedures  (with  a  majority  of  77%  -1295  of 
1682- of respondents).  

Therefore, not analysing it as a separate option would 
make  the  IA  incomplete  and  would  raise  questions 
why  it  was  not  considered  as  an  option  and/or  the 
preferred option. 

In  chapter  7  and  8,  political  feasibility  has  been 
explained  when  comparing  options  and  as  a  relevant 
element to determine the preferred option. It explains 
that  fighting  abuse  is  especially  relevant  for  Member 
States  that  have  been  heavily  hit  by  Cum/Cum  and 
Cum/Ex  practices  during  recent  years.  Because  of 
political reasons, those Member States might be more 
reluctant  to  adopt  a  relief  at  source  system  in  the 
short-term,  as  such  system  gives  a  more  prominent 
role to financial intermediaries. 

The experience of the Netherlands and of Ireland with 
the  reform  of  their  refund  systems  is  added  to  the 

it 

(3)  The  report  should  identify  upfront 
and  assess  all  relevant  options.  In 
particular, 
explore  an 
should 
additional  policy  option  introducing 
improvements 
in  the  WHT  refund 
systems  while  giving  Member  States 
the  possibility  to  introduce  a  relief  at 
source system. This could be done via a 
combination  of  existing  options  or  by 
defining a variant of an existing option. 
The  report  should  explain  why  the 
relief  at  source  option  is  analysed  as  a 
stand-alone option, given that its short- 
and  medium-term  feasibility  seems 
questionable.  It  should  refer  to  the 
experience 
in  Member  States  with 
Quick  refund  systems  and  how  would 
the time limits be chosen 

53 

 
revised 
recent 
impact  assessment.  The  more 
experiences  in  Member  States  regarding  the  QRS 
(Finland,  Spain)  and  the  reason  to  choose  the  time 
limits are introduced in chapter 5. The timeframe will 
be  defined  by  relying  on  the  results  of  the  targeted 
financial 
consultations  undertaken  mainly  with 
intermediaries  and  tax  administrations.  The  Spanish 
case is mentioned (Spanish QRS provides for a 10 to 
40 days deadline to make the refund under the QRS). 

The impact assessment has been revised to provide for 
a  more  comprehensive  overview  of  the  costs  and 
benefits.  A  summary  chart  is  added  at  the  beginning 
of  chapter  6  showing  net  impacts  and  cost/benefit 
figures. In addition, the assumptions used to compute 
the  costs  and  benefits  are  added  below  the  charts  of 
impact  for  investors,  Member  States  and  financial 
intermediaries under options 1-3.  

The introduction of an eTRC is no longer presented as 
a stand-alone option in the revised impact assessment 
but is included in each of the options. The benefits of 
introducing  an  eTRC  are  now  examined 
in 
combination  with  greater  transparency  under  Option 
1.  The  costs  to  investors  of  using  an  eTRC  will  be 
insignificant  compared  to  those  already  incurred  by 
investors for existing TRC’s.  

On  benefits  and  costs  of  reporting  obligations  for 
financial  intermediaries,  we  have  reached  out  to 
affected  business  to  get  more  quantitative  data. 
Despite  the  efforts  made  for  the  IA  including  two 
surveys,  very  limited  quantitative  could  be  obtained. 
However,  it  has  been  enough  to  estimate  costs  for 
intermediaries  under  each  option.  A 
financial 
consistent  qualitative  analysis  is  provided  per  option 
in  the  benefits  side.  In  the  revised  report,  the  new 
estimations  have  been  added  to  chapter  6  and  the 
qualitative  explanation  has  been  expanded.  The 
revised report states that, due to a lack of data, it is not 
possible to provide a robust indication of the benefits. 
A footnote is be added to explain the efforts made in 
order to gather data.  

In  order  to  better  evidence  the  issue  of  tax  abuse, 
estimates  of  tax  revenue  losses  will  be  added  from 
research  by  the  University  of  Mannheim  linked  to 
Cum/Ex  EUR  9.1  billion  and  EUR  141  billion 
Cum/Cum tax abuse through the period 2000-2020, in 
addition  to  ESMA  (European  Securities  and  Markets 

(4)  The  report  should  provide  a  clear 
and comprehensive picture of the costs 
and  benefits  of  each  option,  clearly 
showing  the  net  impacts  and  Benefit 
Cost  Ratios.  It  should  present  more 
clearly how the costs and benefits were 
calculated.  The  impact  analysis  should 
cover  the  assessment  of  all  significant 
the  report 
impacts.  In  particular, 
the  expected 
should  elaborate  on 
benefits  of  introducing  an  eTRC  and 
estimate  the  costs  for  investors.  It 
the 
should  present  more  clearly 
for 
costs  and  benefits 
expected 
intermediaries 
financial 
the 
from 
transparency 
proposed 
enhanced 
obligations. 
an 
to 
additional  effort 
affected  businesses  and  quantify  those 
costs  and  benefits.  If  the  information 
available  does  not  allow  a  robust 
quantification, this should be explained 
and justified in the report and the costs 
and  benefits 
should  be  assessed 
qualitatively. The report should clarify 
whether  the  SME  test  was  carried  out 
and,  if  not,  why  not.  It  should  also 
present  more  clearly  the  expected 
impacts  on  Member  States,  including 
the impacts on tax revenues and GDP 

should  make 
to  reach  out 

It 

54 

 
Authorities) report findings on WHT tax abuse. 

With  regard  to  the  specific  net  tax  revenues  and 
economic  effects  per  Member  State,  the  JRC  studies 
do not allow to have estimates per Member State but 
  For 
EU-aggregate  figures  have  been  provided. 
benefits to combat tax abuse, a qualitative assessment 
is  added  for 
the  various  options,  with  greater 
transparency being a key aspect. 

The SME Test was not carried out as explained in the 
section of ‘impact on SME’ within chapter 6 because 
SMEs are not identified as a business affected by the 
current initiative. The initiative is targeted at portfolio 
investors who generally invest in listed companies and 
listed  companies  only  form  a  very  small  share  of  the 
overall  population  of  SMEs.  Actually,  no  comments 
from  SMEs  were  received  in  the  public  consultation. 
A  footnote  (footnote  73)  has  however  been  added  to 
explain  why  the  SME  test  has  not  been  developed 
further. 

In the revised version, the presentation of the options 
is  amended  and,  therefore,  the  comparison  of  the 
options  and 
their  scoring  have  been  amended 
accordingly. Furthermore, the comparison and scoring 
of  options  in  chapter  7  in  terms  of  effectiveness  are 
also  updated  to  give  equal  weight  to  the  two 
objectives  pursued  by  the  initiative.  Option  3  (Quick 
refund with set-time frame or Relief at Source) is the 
the 
preferred  option  based  on 
comparison and scoring. 

the  changes 

in 

result 

should 

(5)  The  identification  of  the  preferred 
the 
option 
comparison  of  all  relevant  options 
(including  combinations  thereof) 
in 
terms  of  effectiveness,  efficiency  and 
coherence 

from 

(6)  The  report  should  quantify,  to  the 
extent  possible  and  proportionate,  the 
costs and cost savings that are relevant 
for the One In, One Out approach. The 
clearly  and 
estimates 
should  be 
in  the  main 
consistently  presented 
report and annexes 

We made corresponding changes to make Annex 3 on 
the “One in,  One out  approach”  consistent with  what 
is stated in chapter 6 on the assessment of the various 
options. The changes regarding the presentation of the 
options  and  the  preferred  option  are  also  reflected  in 
the overview regarding the One In, One out approach. 

the 

(7)  The  report  should  present  more 
clearly 
different 
views 
stakeholder  groups  with  regard  to  the 
policy  options.  It  should  explain  who 
supports which option 

of 

In chapters 7 (comparison of options) and 8 (preferred 
option),  information  on  the  stakeholders’  views  is 
added when assessing each option and explaining the 
preferred option. This information is also  reflected in 
Annex  2,  which  is  devoted  to  the  consultation 
strategy. It is revised to explain how the three options 
1-3  covered  by  the  revised  impact  assessment  are 
considered by the different stakeholders (i.e. investors, 
financial intermediaries and Member States). 

55 

 
The  impact  assessment  report  was  resubmitted  to  the  RSB  on  20  March  2023  with 
revisions  introduced  in  response  to  previous  opinion,  the  RSB  issued  a  positive 
opinion with reservations on 21 April 2023 to this resubmitted report. The following 
chart summarizes how RSB’s comments were addressed this second time: 

RSB´s reservations 

How it is addressed 

(B) Summary of findings 

(1)    The  report  does  not  present  the  available 
options clearly enough. 

Clarified the timeline of the QRS and why it is not 
a viable standalone policy option. 

(2)  The  fact  that  the  preferred  option  gives 
Member  States  a  choice 
is  not  adequately 
reflected  in  the  impact  analysis  and  comparison 
of options. 

(3)  The  report  does  not  provide  sufficient 
information on costs and cost savings in scope of 
the One In, One Out approach. 

Clarified  before  starting  with  the  scoring  that 
option  3  will  be  assessed  taking  into  account  the 
features  of  the  QRS  since  it  is  the  system  need  to 
be 
to  comply  with  minimum 
standards of efficiency and security. 

implemented 

The information on costs and cost savings in scope 
of ‘one in, one out’ is complete. 

(C) What to improve 

(1)  While  the  revised  report  introduces  a  new 
option  providing  Member  States  with  the  choice 
to  implement  either  a  Quick  Refund  System  or 
Relief at Source, it no longer presents the Quick 
Refund System as a stand alone option along with 
the Relief at Source and other options. The report 
should either justify this exclusion or reintroduce 
the  Quick  Refund  System  in  the  set  of  self-
standing options considered, also in view that this 
would  facilitate  the  analysis  and  comparison  of 
options  (see  below).  The  report  should  also 
clarify  what  is  meant  by  the  notion  of  a  Quick 
Refund System ‘within a set timeframe’. 

(2)  The  analysis  of  the  preferred  option  and 
comparison  of  options  should  be  revised  to 
reflect  the  fact  that  the  preferred  option  gives 
Member  States  a  choice.  The  report  should  be 
more specific – supported by evidence - about the 
expected  choices  made  by  Member  States  and 
present  the  implications  (in  terms  of  costs  and 
benefits) of selecting one or the other. If there is 
uncertainty  about  the  likely  choices,  the  report 

56 

-The exclusion of the QRS as standalone option is 
justified  in  section  5.3  ‘options  discarded  at  an 
early  stage’.  A  QRS  as  standalone  option  would 
entail  asking  some  Member  States  to  step  back  in 
their current RAS. 

-Added  end  note  61  to  define  a  set  timeframe:  A 
‘pre-defined timeframe’ or a ‘set timeframe’ refers 
to  a  specific  period  of  time  whereby  the  tax 
administration  needs  to  refund  the  excess  tax 
the 
withheld  back 
requirements  to  access  the  QRS  are  met  (i.e.  40 
calendar days). 

investor  provided 

the 

to 

-  The  description  of  option  3  better  reflects  that  it 
entails  a  QRS  as  a  minimum  requirement  while 
Member  States  can  introduce  or  continue  to 
implement a RAS. 

-Chapter  7  clarifies  that  the  scoring  of  option  3 
mainly  considers  the  QRS  as  it  is  the  procedure 
that  Member  States  need  to  implement  to  comply 
with minimum standards of efficiency and security.  

 
 
 
should provide ranges of expected impacts. 

(3) The report should be more specific about the 
differences  in  the  expected  costs  and  benefits  of 
the options. It should improve the presentation of 
the  costs  and  benefits,  particularly  for  financial 
intermediaries and tax authorities, including those 
that are not quantified, so that it is clear what the 
differences between the options are. 

-Clarified in page 29 that the eTRC implementation 
costs  for  some  financial  intermediaries  are  not 
taken  into  account  in  the  final  estimations  as  they 
are optional. 

-  Presentation  of  costs  and  benefits  for  financial 
intermediaries  and  tax  authorities  improved  in 
Table 5. 

-Added  in  Table  5  recurrent  costs  for  financial 
intermediaries  of  (i)  reporting  systems  and  (ii) 
benefits  of  the  reduction  of  recurrent  costs  of  the 
new standard refund system. 

-In  Table  5  separated  out  the  implementation  and 
recurrent 
tax 
costs 
administrations.  

for  Member 

State 

(4)  The  scores  in  the  comparison  of  options 
should  be  fully  in  line  with  the  analysis.  If  the 
performance  of  the  options  cannot  be  fully 
compared  in  quantitative  terms  (scores),  the 
report should present a well justified comparison 
of options in qualitative terms. 

intermediaries  related 

(5)  The  report  should  justify  why  the  costs  for 
financial 
to  reporting 
obligations  are  not  considered  in  scope  of  the 
One  In,  One  Out  approach.  It  should  further 
explain  how  the  cost  savings  for  investors  of 
EUR  730  million  were  estimated.  The  analysis 
should  always  clearly  differentiate  between  one-
off  and  recurrent  costs.  The  Board  notes  the 
estimated  costs  and  benefits  of  the  preferred 
option(s)  in  this  initiative,  as  summarised  in  the 
attached quantification tables 

-Besides  the  changes  in  Chapter  7  following  what 
to  improve  (2),  the  comparison  drafting  has  been 
nuanced  by  explaining  in  qualitative  terms  the 
hybrid nature of option 3. 

  The tables in Annex 3 makes a distinction 

on one-off and recurrent costs and indicates 
the reporting costs for financial 
intermediaries. For clarification purposes 
the following amendments are added: Cost 
savings for financial intermediaries are 
separated out from investment benefits for 
financial intermediaries.  

  Annex 3 explains how EUR 730 and then 

409 million was derived.   

4) 

EVIDENCE, SOURCES AND QUALITY  

The  Commission  has  been  consulting  widely  and  has  received  input  from  various 
sources on this impact assessment work. The following expert advice has fed into the 
Impact Assessment:  

  ESMA: ‘Final report On Cum/Ex, Cum/Cum and withholding tax reclaim schemes’, 

September 2020, the European Securities and Markets Authority (ESMA) 

57 

 
 
 
 
 
  ESMA:  ‘Report  on  preliminary  findings  on  multiple  withholding  tax  reclaim 

schemes’, July 2019, the European Securities and Markets Authority (ESMA) 

  ESMA: ‘EU Securities Markets ESMA Annual Statistical Report’, 2021 

  JRC studies as explained in Annex 4 

 

‘European  Post  Trade  Forum  Report’  and  ‘Detailed  analysis  of  the  European  Post 
Trade Landscape’, 2017 

  The  Giovannini  Group.  ‘Cross-border  clearing  and  settlement  arrangements  in  the 

European Union’ (Nov.2001)    

  The Giovannini Group. ‘EU clearing and settlement arrangements’ (April 2003) 

  FISCO Group: ‘Fact finding study: Fiscal compliance procedures related to clearing 
and settlement within the EU - Fiscal Compliance Experts' Group - 19 April 2006.  

  FISCO  Group:  ‘Fiscal  compliance  barriers  related  to  post-trading  within  the  EU  - 

Fiscal Compliance Experts' Group - 23 October 2007 

  FISCO  Group:  Booklet:  Simplified  withholding  tax  relief  procedures  -  Fiscal 

Compliance Experts' Group - 9 February 2010 

 

‘Workable solutions for efficient and simplified fiscal compliance procedures related 
to post-trading within the EU’ report from the Tax Barriers Business Advisory Group 
– T-Bag 

  OECD:  ‘Treaty  Relief  and  Compliance  Enhancement  (TRACE)-  Implementation 

Package’ approved by CFA, 2013 

  Public  Consultation:  1682  replies  and  51  position  papers  from  associations, 

companies in general, banks, consulting firms/advisors and academics. 

  Target  consultations  via  physical/online  meetings  and  in  written  feedback  from: 
OECD on TRACE experts, GLEIF (Global Legal Entity Identifier Foundation), EBF 
(European Banking Federation), AGC (Association of Global Custodians), EFAMA 
(European  Fund  and  Asset  Management  Association),  EY  Blockchain  experts  for 
taxes initiative, ICI Global (Investment Company Institute), Euroclear, EBSI experts 
(European  Blockchain  Service 
(Financial  Markets 
association), JITSIC at  OECD (Joint  International  Taskforce on Shared  Intelligence 
and Collaboration) and several experts from Member States. 

Infrastructure),  AFME 

The Commission services have taken into account all of above-mentioned sources of 
expert advice in the present impact assessment. 

58 

 
 
 
Annex 2: Stakeholder Consultation 

1) 

Introduction 

Table  Overview of consultation activities 

Methods of consultation 

Consultation 
period 

Objective/Scope of consultation 

Inception Impact Assessment 
(feedback mechanism) 

14 May - 11 June 
2021 

Collect feedback on the inception impact 
assessment outlining the initial structure 
of the project 

Public Consultation 

1 April - 26 June 
2022 

Ascertain the views of a broad range of 
stakeholders mainly on the added value 
of a European action and the potential 
scope of the initiative 

TADEUS forum 

6 May 2020 

5 May 2022 

Seek head of tax administrations support 
for strengthening the administrative 
cooperation framework and an authorized 
intermediary mechanism on WHT relief 
at source procedures and encourage their 
participation in the public consultation 
phase 

Targeted 
consultation 

Meetings and 
surveys with 
Member States 

13 Nov 2020 

17 March 2021 

30 September 
2022 

Several dates 
during 2021-
2022 

Gather views of experts from national 
authorities on the need for EU action and 
on possible policy design of the WHT 
initiative. The consultations consisted of 
meetings of Working Party IV, bilateral 
meetings (remotely and physical), and 
surveys on current WHT refund/relief at 
source systems  

High Level 
Working Party on 
Taxation 

5 March 2022 

Assess support from Member States at a 
political level on EU relief at source 
action 

 Other 
stakeholder´s 
meetings 

Several dates 

Gather experience from industry and 
international/national organisms, 
including representatives of retail 
investors  

2) 

Stakeholder views of the Options presented in the Impact Assessment 

59 

 
 
 
2.1. Option 1 – Setting up a common EU digital Tax Residence Certificate and common 

reporting 

The  proposed  introduction  of  a  common  eTRC  is  supported  by  all  stakeholders.  For 
investors, who need to provide evidence of their tax residency, this is part of a faster and 
more uniform procedure and will also be part of  improving the Capital Markets Union. 
The  financial  intermediaries  are  primarily  in  favour  of  an  investor  self-declaration  of 
residency instead, but they do not oppose the digital solution, which enables automation 
for  them.  The  self-declaration  was  not  considered  as  a  way  forward  in  the  proposal  as 
Member  States  considered  that  they  required  evidence  of  residency  from  the  tax 
jurisdiction  of  the  investor.  Overall,  Member  States  are  also  positive  with  the 
introduction of an eTRC although some Member States have concerns with regard to its 
implementation costs.  

Financial  intermediaries  are  aware  that  enhanced  transparency  is  required,  however, 
compliance costs should be kept to a minimum. Further, they consider that having an EU 
reporting  standard  would  ensure  unform  reporting  throughout  the  EU  as  opposed  to 
national reporting solutions. Financial intermediaries have some concerns on the amount 
of  information  to  be  sent  as  well  concerns  regarding  sharing  customer  information,  in 
particular for customers who do not wish to claim a refund.  

In  general,  Member  States  are  in  favour  of  the  reporting  of  WHT  information  by 
financial intermediaries to their tax authority. They consider that such information could 
be useful in combatting tax abuse. With respect to the refund procedure, Member States 
consider that standardising the reclaim form could be beneficial although there are minor 
differences  between  Member  States  on  what  should  be  included  and  how  the  reporting 
should take place.  

In regard to a standard liability procedure financial intermediary have stated that they 
should only be held liable for their own errors and that if information is supplied to them 
that is erroneous, for example by the investor, then the intermediary should not be held 
responsible  if  due  diligence  procedures  have  been  correctly  carried  out.  Most  Member 
States  recognise  this  apportionment  of  liability  in  their  own  Member  States  national 
rules.  However,  one  large  Member  State  has  rules  which  imply  strict  liability  of 
information  handled  by  their  withholding  tax  agent  and  that  the  withholding  tax  agent 
should  seek  their  own  redress  from  other  intermediaries  in  the  financial  chain  or  the 
investor for information that is incorrect.  With regard to a standard streamlined refund 
procedure, including bulk requests investors are only indirectly affected by this as they 
already  are  required  to  supply  information  for  reclaims  and  for  existing  customer  due 
diligence  procedures.  Rather,  a  streamlined  refund  procedure  (quicker  assessment  of 
correct  tax)  will  rather  ultimately  benefit  investors.  Reduction  in  the  burden  of  filing 
reclaims has been noted by investors in the Public Consultation. Financial intermediaries 
have also welcomed the opportunity to streamline refund procedures as much as possible 
to  reduce  their  administrative.  Member  States  recognise  the  benefit  of  streamlining 
refund procedures, however, the information to be supplied should reflect their national 
requirements to ensure a correct application of WHT relief.   

2.2 Option 2 - Relief at source system  

60 

 
For the investors this is the quickest method and consider this as the optimal option. The 
Financial Intermediaries are also in favour of this option although they acknowledge that 
some form of refund is also necessary.  

Most Member States are favourable for this option although would require safeguards to 
ensure  the  system  is  compliant  as  well  being  able  to  detect  abuse  promptly  in  order  to 
prevent WHT abuse. A smaller group of Member States, including a large Member State, 
are currently not in favour of this option as they consider that all WHT claims need to be 
controlled  by  their  tax  administration,  rather  than  WHT  relief  being  provided  by  a 
financial intermediary, in order to prevent tax abuse and would prefer to retain a WHT 
refund  system.  This  second  group  puts  more  emphasis  on  extensive  data  gathering, 
appropriate  WHT  refund  deadlines,  and  due  diligence  and  liability  rules  for  financial 
intermediaries. In the latter group, which is smaller, there tends to be Member States that 
suffered more losses from the Cum/Ex and Cum/Cum issues. 

2.3 Option 3 - Relief at source system or Quick refund system  

The  Quick  refund  system  was  not  part  of  the  Public  Consultation  unlike  the  Relief  at 
source  system.  From  the  replies  to  the  Consultation,  the  dominant  opinion  of  investors 
was that the reclaim systems should be reformed to provide prompt WHT relief therefore 
the  Quick  refund  system  would  achieve  this  although  less  effectively  compared  to  the 
Relief at source system.  

Although  financial  intermediaries  would  prefer  the  Relief  at  source  system,  they 
understand that a WHT refund system will still need to operate, in particular to address 
the concerns of some Member States on WHT tax abuse.   

As with Option 2) Member States are split in two groups. Most Member States are open 
to an initiative to provide prompter WHT relief either through a quick refund or relief at 
source  system.  However,  a  minority  of  Member  States  emphasise  the  importance  of  a 
system which has sufficient controls to prevent tax abuse over the need to have a system 
which  provides  prompt  WHT  reclaims.  Therefore,  a  refund  system  would  allow  such 
control to be exercised by Member States before granting WHT relief.  

3) 

Consultation Participation 

3.1 Inception Impact Assessment (IIA) 

Category of respondent  

The  consultation  period  was  between  14  May  and  11  June,  2021  via  the  Commission 
website (82). 33 Responses were received. As shown in Figure 14, most of the respondent 
were business associations and companies from the financial sector (financial institutions 
and big scale investors): 

Figure 20: Overview respondents 
Source: TAXUD 

61 

 
Figure 21: Overview respondents 
Source: TAXUD 

A range of options were presented in the IIA:  

Option  1:  Improving  withholding  tax  refund  procedures  to  make  them  more  efficient: 
This option entails the implementation of several measures, the objective of which is to 
simplify and streamline withholding tax refund procedures by making them quicker and 
more transparent. These measures are not limited by but could include: the establishment 
of  common  EU  standardised  forms  and  procedures  for  withholding  tax  refund  claims 
irrespective  of  the  Member  States  concerned  and  the  obligation  to  digitalise  current 
paper-based relief processes. 

Option  2:  Establishment  of  a  fully-fledged  common  EU  relief  at  source  system:  This 
option entails the implementation of a standardised EU-wide system for withholding tax 
relief  at  source  whereby  the  correct  withholding  tax  rate,  as  provided  in  the  DTT  is 

62 

 
 
 
applied at the time of payment by the issuer of the security, to the non-resident investor 
thereby not incurring double taxation. 

Option  3:  Enhancing  the  existing  administrative  cooperation  framework  to  verify 
entitlement  to  double  tax  convention  benefits:  This  option  envisages  a  reporting  and 
subsequent mandatory exchange of beneficial owner-related information on an automated 
basis, to reassure both the residence and source country that the correct level of taxation 
has been applied to the non-resident investor. 

Key results:  

There was broad support for all three options with agreement on the urgent need for EU-
wide regulatory harmonisation of forms and processes in the WHT sphere and emphasis 
on  digitalisation.  In  terms  of  content  preference,  the  responses  split  between  option  1 
(digitalisation) and option 2 (relief at source). Further, many of the responses suggested 
that all three options are complementary so all of them should be addressed.  

3.2 Public Consultation 

Overview 

A total of 1683 responses were received, one of which has been deemed invalid due to 
containing  profanity  and  has  been  discarded,  leaving  1682  valid  responses.  Regarding 
stakeholder types of respondents, EU citizens accounted for 92.0% of responses (1547 
of 1682), 3.5%  of responses  (59 of 1682) came  from  companies/business organisations 
and 2.4% of responses (40 of 1682) from business associations.  

Figure 22: Stakeholder type – all respondents 

In  regard  to  country  of  origin,  57.2%  of  responses  (962  of  1682)  came  from  Spain, 
20.1%  (338)  from  Germany,  and  10.0%  (169)  from  Portugal.  As  for  the  remaining 
responses,  10.5%  (177)  originated  from  other  EU  countries  and  2.2%  (37)  were  from 
non-EU countries. 

Figure 23: Country of origin – all respondents 

63 

 
 
 
When  only  looking  at  the  country  of  origin  for  companies/business  organisations  and 
business associations, 17.2% of responses (17 out of 99) originated from France, 15.2% 
(15) from Belgium, 11.1% (11) from Germany, and 21.2% (21) from non-EU countries. 

Figure 24: Country of origin – companies/business organisations & business associations 

Main issues 

89.0% (1495 of 1679) of respondents strongly agree that the current functioning of WHT 
refund  procedures  in  Member  States  hinders  cross-border  investment  in  the  EU 
securities  market.  92.0%  (1430  of  1555)  of  EU  citizens  strongly  agreed,  compared  to 
50.0% (49 of 98) of companies/business organisations and business associations. 

In  terms  of  payments  where  the  issue  of  inefficient  WHT  procedures  is  relevant, 
dividends from listed companies  received 98.93% of responses (1662 of 1679). More 
than  78%  of  companies/business  organisations  and  business  associations  also  deemed 
dividends from unlisted companies and interest related to debt instruments in listed 
companies as relevant, compared to less than 35% of EU citizens for those two types of 
payments. 

Figure 25: Payments affected by inefficient WHT procedures – all respondents 

64 

 
 
  
In the opinion of respondents, the nature of the problems with existing WHT refund 
procedures considered to be of “high importance” include the following: lengthy WHT 
refund  procedures  were  cited  by  88.69%  of  respondents  (1451  of  1680),  lack  of 
digitalisation and non-user-friendly forms by 88.13% (1441 of 1680), and costly WHT 
refund procedures in monetary terms by 79.59% (1283 of 1680). 

Figure 26: Nature of the problems with existing WHT refund procedures – all respondents 

65 

 
 
 
As for the consequences due to the problems with WHT refund procedures, the two 
most important matters for EU citizens include the permanent double taxation suffered 
cited by 91.29% of respondents (1425 of 1555) and  giving up the right of submitting 
WHT refund claims by 74.76% of respondents (1164 of 1555). On the other hand, the 
two issues most often ranked as ‘high importance’ by companies/business organisations 
and  business  associations  are  the  delays  in  effectively  receiving  the  excessive  WHT 
refund,  cited  by  89.80%  of  respondents  (88  of  98),  and  the  high  compliance  costs 
associated with the WHT refund process cited by 83.67% of respondents (82 of 98). 

Figure 27: Consequences of the problems encountered with WHT refund procedures – all respondents 

58.7% of respondents (969 of 1651) regularly invest in securities in EU countries that 
are not their home country, 24.7% (407 of 1651) do so occasionally, while 15.0% (248 of 
1651) have never done so. Those who do not invest outside their home country indicated 
wanting to avoid double taxation and inefficient WHT procedures as main reasons.  

Figure 28: Investing in securities in an EU country that is different from the home country – all respondents 

66 

 
 
Additionally,  62.3%  (857  of  1376)  of  the  respondents  who  invest  in  securities  in  EU 
countries outside their home country regularly encounter problems with the refund of 
the excess tax withheld when the rate of the applicable Double Taxation Convention is 
levied.  50.8%  (651  of  1282)  of  EU  citizens  were  never  able  to  get  a  refund  on  the 
excessive  tax  withheld,  whereas  75.9%  (41  of  54)  of  companies/business  organisations 
and business associations were able to receive a refund in some cases.  

Figure 29: Receive excessive tax withheld back –  
EU citizens (left) vs. companies/business organisations & business associations (right) 

The  countries  with  which  respondents  have  regularly  encountered  problems  with  are 
France  with  51.6%  of  respondents  (867  of  1680)  and  Germany  with  39.3%  (661  of 
1680),  while  the  Netherlands  has  posed  the  least  problems  according  to  16.6%  (279  of 
1680) of respondents. 

More  than  50%  (of  1555)  EU  citizens  answered  with  “don’t  know”  or  did  not  give  an 
answer on the questions regarding the time or monetary costs for claiming refunds. For 
56.4%  (31  of  55)  of  companies/business  organisations  and  business  associations,  the 
period of time to receive a refund was longer than 2  years. Additionally, 83.3% of this 
stakeholder group (45 of 54) reported that collecting the required documentation for one 
refund claim takes more than three weeks with the monetary cost of the refund procedure 
being a medium percentage of the refund amount for 33.3% (18 of 54) of them.  

Need for EU Action  

67 

 
 
   
 
94.1% of contributors (1583 of 1675) strongly support the need for EU action to make 
WHT procedures more efficient; with 94.3% (1576 of 1672) responding that action at EU 
level would add high value as an EU-wide framework would be in place.  

Figure 30: Need for EU action – all respondents 

Policy options 

From an investor’s point of view, 83.9% (1295 of 1544) of EU citizens have a preference 
for a harmonised relief at source system. Many companies/business organisations and 
business  associations  share  this  view  with  EU  citizens;  42.2%  (35  of  83)  of  this 
stakeholder  group  thought  that  a  harmonised  relief  at  source  system  should  be 
accompanied with a harmonised refund system. 

The three most preferred measures to streamline WHT refund procedures are the creation 
of a single web portal for refund claims, cited by 72.17% of respondents (1193 of 1653), 
standardised and same language forms by 55.78% of respondents (922 of 1653), and the 
ability  to  e-request  tax  residence  certificates  along  with  a  digitalized  verification 
system by 52.57% of respondents (869 of 1653).  

Under  a  potential  EU  relief  at  source  system,  61.34%  (1022  of  1666)  of  respondents 
think  that  dividends,  interest,  royalties,  and  other  passive  income  payments  should  be 
covered. Additionally, 81.6% (1297 of 1589) of respondents think that there should be a 
fully-fledged relief at source system (covering both low and high-risk payments).  

In  the  context  of  a  relief  at  source  system,  44.4%  (24  of  54)  of  companies/business 
organisations  and  business  associations  consider  a  joint  limit  of  a  minimum  WHT  rate 
and a maximum amount of payment as a low-risk payment. While 29.6% (16 of 54) of 
this  stakeholder  group  consider  payments  as  “low-risk”  if  the  applicable  WHT  rate  is 
above 15%. EU citizens had mixed opinions on this question and their responses did not 
reveal  a  clear  preference.  65.6%  (1066  of  1666)  of  respondents  believe  that  investors 
from  EU and non-EU countries should benefit from  a potential relief  at  source system. 
74.7%  (1194  of  1666)  of  respondents  think  that  both  EU  and  non-EU  financial 
intermediaries should be obliged to report relevant information on the correct WHT rate 

68 

 
 
to be levied on the dividend payment (or other passive income payments) to withholding 
agents. 

In  terms  of  enhancing  the  existing  administrative  cooperation  framework,  63.8% 
(952 of 1492) of EU citizens strongly agree that it would be appropriate to broaden the 
Directive  on  administrative  cooperation  (DAC)  framework  in  the  EU,  compared  to 
23.3% (21 of 90) of companies/business organisations and business associations. Overall, 
the  majority  of  respondents  agree  to  some  extent.  Of  those  who  agreed  that  the 
administrative cooperation framework  within the EU should be broadened, 63.9% (821 
of 1284) are of the opinion that this should be done in combination with other measures 
(i.e. a harmonised relief at source system).  

the 

the  residence  country  of 

Regarding  the  country  in  which  the  financial  intermediary  closest  to  the  investor 
should report relevant information, 86.85% (1314 of 1513) of EU citizens are of the view 
it  should  be 
investor.  29.47%  (28  of  95)  of 
companies/business  organisations  and  business  associations  share  this  view,  while 
45.26% (43 of 95) of this stakeholder group believe that information should be reported 
to  the  source  country  of  the  investment.  Additionally,  71.8%  (1129  of  1573)  of 
respondents agree that identification information, treaty residence status of the beneficial 
owners  of  the  income  paid,  and  the  nature  and  amount  of  income  earned  by  those 
investors should be reported to ensure tax treaty benefits entitlement. 2.0% (32 of 1573) 
of respondents  disagreed with  this approach while 26.2% (412 of 1573) answered  with 
“don’t know.” 

53  position  papers  were  submitted  to  this  public  consultation,  2  of  which  have  been 
deemed  invalid  and  therefore  have  been  discarded,  leaving  51  valid  position  papers 
remaining.  The position papers especially stressed the importance of  harmonising and 
digitising WHT procedures along with  implementing  standardised  forms to  ease the 
filing and processing of refund claims. 

3.3 Meetings with Member States 

3.3.1. WPIV of 30 September 2022  

The meeting was set up with Member States to discuss key aspects of the Commission 
initiative: the EU Digital tax residence certificate (eTRC), and the Quick refund system 
(QRS).  A  presentation  was  also  given  by  Finland  on  the  results  of  the  first  year  of  its 
relief at source system.  

The Commission introduced the results of the survey sent to Member States on the eTRC 
and their current tax residency procedures. The eTRC proposal was broadly supported by 
Member  States,  however  additional  work  would  be  required  by  them  to  assess  each 
option further as well as ensuring compatibility with their existing TRC systems. In terms 
of  information  contained  on  the  eTRC  there  was  agreement  that  certain  information 
should be mandatory but that the form should also have optional fields which could be 
used  by  Member  States  for  their  specific  requirements,  including  their  own  residence 
criteria.    For  the  validity  period,  the  need  for  a  revocation  mechanism  should  also  be 
included in the system. 

Member  States  raised  a  wide  range  of  issues  on  the  QRS  proposed.  The  scope  of  the 
proposal  (portfolio  versus  other  types  of  investor),  the  possibility  of  introducing  risk 
management tools, the importance of clarifying liability rules (contractual agreements or 

69 

 
a  statutory  basis)  as  well  as  the  reporting  obligations.  Member  States  were  concerned 
about  control  issues  citing  that  the  system  should  be  robust  against  tax  abuse  like 
Cum/Ex  and  Cum/Cum  frauds.  No  conclusive  outcome  on  the  QRS  proposal  was 
possible, however, the majority of Member States were willing to analyse its functioning. 

Finland  reported  positive  outcomes  from  their  new  relief  at  source  system:  82%  of 
dividend payments with lower rates were paid to individual investors while the quality of 
data and controls to prevent tax abuse had improved. Member States were interested on 
how  Finland  dealt  with  issues  like  the  scope,  the  reporting  obligations  (use  of  a 
standardised  xml  reporting  schema),  the  controls  undertaken  in  their  system  to  prevent 
tax abuse, and the liabilities of financial intermediaries.  

3.3.2. WPIV of 17 March 2021 

The  OECD  presented  the  TRACE  relief  at  source  system.  In  terms  of  liabilities,  the 
country where the Authorised Intermediary (AI) administering the relief at source system 
is based, would be responsible for ensuring that the Intermediary is liable. However, the 
sanctions  (including  the  revocation  of  the  AI  status)  could  have  effect  for  all  the 
governments  involved.  Further  forms  of  control  could  be  considered  for  the  EU  (e.g. 
joint audits). The OECD considers that the financial intermediary closest to the investor 
is  best  placed  to  check  the  validity  of  information  submitted  by  the  investor  for  treaty 
eligibility, including the self-declaration of tax residence, through the use of information 
obtained for AML/KYC purposes.  

Finland gave a presentation on its new relief at source system of WHT which came into 
force  as  of  1  January  2021.  The  new  system  is  based  on  the  OECD  TRACE  system. 
Finland  clarified  that  the  system  is  limited  to  dividends  paid  on  nominal  shares  by 
publicly  listed  companies  to  non-resident  investors.  Collective  investment  vehicles  like 
transparent  funds  are  excluded  from  the  relief  at  source  model,  as  the  matter  would 
involve changes to tax treaties, and not only changes to relief at source procedures. 

The biggest change compared to the previous relief at source system in  Finland, is that 
under the new system information on the Beneficial Owner (BO) is passed on from AIs 
to  the  Finnish  tax  administration,  while  before  it  was  the  responsibility  of  the  paying 
company to apply the correct level of taxation (if allowed). Hence, under the new system 
the  AI  is  responsible  for  the  accuracy  of  the  information  provided.  Finland  relies  on  a 
strict liability approach for AI.  

In terms of resources, as the system has been recently implemented additional resources 
were required but Finland expects that the workload for the administration will decrease. 
In terms of liability, the Finnish tax administration can audit the AI and risk analysis is 
used  for  audit  selection  purposes.  Tax  collection  is  always  primarily  targeted  at  the 
Authorised Intermediary in those cases of under withholding where the AI has not used 
reasonable measures to determine the beneficial owner of the dividend.  

Germany  presented  its  new  WHT  refund  system.  Given  the  Cum/Cum  and  Cum/Ex 
scandals,  Germany  wanted  to  ensure  that  the  tax  administration  had  full  control  over 
WHT refunds and that the proceed is centralized in Germany. The main elements of the 
pending  reform,  currently  under  discussion  in  the  Parliament,  are:  1  -  procedure  to 
become fully centralized; 2 - all steps to be digitalized (although this will take some time, 
until 2024); 3 - the refund system will remain the rule and tax administration will remain 
the only one in charge of checking the entitlements; 4  - investors and operators will be 

70 

 
required  to  provide  additional  information  justifying  their  claims  with  a  considerable 
increase  of  the  administrative  burden.  On  the  other  side,  the  digitalized  procedure  will 
ease the burden. 

The  Commission  presented  the  outcome  of  the  questionnaire  sent  in  advance  of  the 
meeting  for  the  collection  of  quantitative  and  qualitative  information  on  the  current 
situation regarding withholding tax procedures and position of Member States on how to 
improve the current system. 20 Member States provided replies. No conclusive outcome 
can  be  observed  from  the  overview  of  the  replies.  According  to  the  20  replies  to  the 
questionnaire  received  so  far,  the  majority  of  countries  rely  on  a  combined  relief  and 
refund WHT system. Another conclusion drawn from the feedback received is that most 
of  respondents  have  ongoing  developments  (unilateral  domestic  measures)  on  WHT 
procedures  or  foresee  them  for  next  years  (mainly  in  the  area  of  digitalisation  and 
enhancing  an  effective  relief  at  source  system).  Finally,  the  possibility  of  setting  up  an 
EU  relief  at  source  system  mirroring  TRACE,  supporting  the  work  strand  of  making 
simpler  and  more  efficient  WHT  refund  procedures  and  reinforcing  the  administrative 
cooperation  framework  was  mentioned  by  respondents  among  the  potential  optimal 
solutions for tackling inefficiencies of WHT procedures in the short and medium term. 

3.3.3. WPIV of 13 November 2020 

The  Commission  presented  to  Member  States  the  CMU  Action  Plan.  The  three  core 
objectives underlying the CMU Action Plan were highlighted: (i) making financing more 
accessible to European companies; (ii) making the EU an even safer place for individuals 
to save and invest long-term; and (iii) integrating national capital markets into a genuine 
Single  Market.  In  the  furtherance  of  these  objectives,  it  was  proposed  to  simplify  and 
standardize  WHT  procedures  by  putting  forward  a  relief  at  source  system  as  these  are 
divergent across member states, lengthy, costly and prone to fraud. The aim of the WHT 
initiative is not to harmonize rules in the EU, including residency, rather it is to simplify 
existing WHT procedures in the EU.  

ESMA  presented  its  final  report  on  the  Cum/Cum  and  Cum/Ex  scandals.  Their  main 
conclusion is that addressing these abuses should primarily lie with the tax authorities of 
Member  States,  for  example  through  cooperation  between  tax  authorities  and  financial 
authorities  in  the  EU.    A  Member  State  was  concerned  that  a  relief  at  source  system 
would not address the Cum/Cum and Cum/Ex frauds, in particular for enforceability of 
EU rules on non-EU Intermediaries, ESMA concurred that these were indeed issues to be 
addressed,  and  noted  that  the  final  report  focusses  on  Cum/Ex  and  not  Cum/Cum 
schemes like dividend arbitrage.  

The  Commission’s  Joint  Research  Centre  (JRC)  presented  the  methodology  used  to 
analyse  the  costs  of  inefficient  WHT  procedures.  The  methodology  was  set  out  in  the 
Economic  Impact  of  the  Commission  Recommendation  on  WHT  Relief  Procedures 
(2009).  According  to  an  update  of  this  study  in  2016,  direct  costs  of  inefficient  WHT 
procedures  are  around  8.4  million  euros  per  year.  These  costs  include  three  specific 
sources  related  to  WHT  relief  procedures:  (i)  compliance  costs;  (ii)  forgone  relief  (i.e 
unclaimed tax refunds); and (iii) opportunity costs due to delayed claims and payments of 
tax refunds. Further, it was indicated that an update to this study was underway for the 
new initiative. Methodological improvements on the previous approach are based on the 
use of the Computable General Equilibrium model CORTAX. This will allow to capture 
behavioural  responses  of  relevant  economic  agents  such  as  firms  and  governments  as 

71 

 
well  as  general  equilibrium  effects  of  tax  policies  on  economic  activity  like  GDP  and 
cross-border financial investment flows.  

On the way forward, the Commission presented Action Plan for fair and simple taxation 
supporting  the  recovery  strategy  (the  Action  Plan)  published  in  July  2020.  The  Action 
Plan proposes to  introduce a common, standardised EU-wide system for  WHT relief at 
source coupled with a new exchange of information and cooperation mechanism between 
tax  administrations  and  financial  competent  authorities.  To  deliver  these  goals,  OECD 
TRACE  initiative  will  be  taken  into  account  and  both  legislative  and  non-legislative 
measures are envisaged. The Commission’s preferred approach consists of a system that 
allows a smooth and correct application of tax treaty benefits, through a relief at source 
as  a  primary  mechanism,  and  a  digitalized/standardised  refund  system  as  back-up 
process.   

A  few  Member  States  declared  lack  of  support  for  the  implementation  a  fully-fledged 
relief  at  source  system  as  they  consider  still  premature  to  explore  such  a  solution. 
However,  they  were  not  against  the  idea  of  standardizing  and  digitalizing  WHT 
procedures.  Member  States  indicated  that  the  following  issues  should  be  taken  into 
account in the initiative: the lack of harmonised interpretation of certain rules such as tax 
residency  across  the  EU;  the  need  to  coordinate  the  EU  initiative  with  the  work  of  the 
OECD;  an  accurate  delineation  of  the  scope  of  the  initiative;  the  liability  of 
intermediaries  should  be  defined;  triangular  cases  where  the  authorized  intermediaries 
are not resident in the same country as the investor (including outside of the EU) should 
be addressed; appropriate IT systems to be in place to handle the proposed system; and 
concerns that removing  WHT refund system in  place of relief at source  might  increase 
tax abuses.  

3.3.4. Bilateral meetings with Member States 

Several  bilateral  meetings  took  place  with  Member  States  in  2021-2022  to  understand 
their current WHT claim systems and the issues that are important for them in respect of 
possible reforms.  

Further, for the preparation of the Impact  Assessment, in  depth bilateral  meetings were 
held  with  Member  States  where  withholding  tax  refund  systems  appear  to  play  an 
important role (83). The following issues were discussed in these meetings: the digital tax 
residence  certificate,  enhanced  transparency  via  increased  common  reporting,  and  a 
proposal for a quick refund procedure. 

3.4 Meetings with stakeholders 

Meeting with business stakeholders on 28 September (84) 

A  meeting  was  held  with  key  stakeholders  to  discuss  the  main  elements  of  the 
Commission’s WHT initiative, in particular the main elements the Quick refund system 
aims to introduce to improve the current framework on WHT procedures. In addition, a 
presentation was given by Finland on the results of their new relief at source system. The 
OECD also participated in the meeting, sharing their experience of the TRACE system.  

Stakeholders  raised  the  following  issues  which  they  considered  required  further 
development:  

72 

 
  Confidentiality issues in relation to the system proposed: Preserve clients´ data from 
competitors  is  one  of  the  main  concerns  of  the  industry  when  setting  up  a  system 
departing from TRACE. 

  External  dimension of the initiative:  important  for the industry that  non-EU located 

financial intermediaries can participate in the new system. 

  Clear preference for an investor self-declaration instead of tax residence certificate. It 

 

has the advantage of involving an active statement from the investor himself. 
Identification of beneficial ownership: issue to be addressed in a further stage of the 
initiative. 

  Reporting  obligations  seem  burdensome,  preference  for  TRACE-like  information 
transmission  method  on  pool  basis  to  the  WHT  agent  and  directly  to  the  source 
country on yearly basis. 
In  favour  of  introducing  the  relief  at  source  system  at  least  for  low-risk  payments 
(threshold below 15% WHT rate). 

 

Further, the stakeholders had further questions on the compulsory/voluntary nature of the 
Quick  refund  system,  the  elements  to  be  included  in  the  due  diligence  system,  and  the 
timeline for the adoption of the proposal by the Commission. 

The  Commission  requested  participants´  support  to  assess  the  economic  costs  this  new 
system would imply for the financial sector.  

Bilateral meeting with stakeholders 

In order to gather the views of financial intermediaries several meetings were held with 
associations representing intermediaries involved in the WHT reclaim systems in the EU 
and  with  other  interested  stakeholders  (such  as,  consulting  firms,  international 
organizations, etc.) and also to inform the Commission about WHT systems in the EU. 
Further,  the  Commission  stressed  the  need  to  gather  data  for  the  Impact  Assessment 
include  costs  and  benefits  of  recent  WHT  reforms  of  Member  States,  and  key  industry 
data,  for  example,  on  type  of  investors  (retail/companies/institutional  investors),  and 
direct/indirect holdings of portfolio investments. 

EFAMA gave an overview of the asset management industry. We touch upon their main 
concerns  such  as  the  lack  of  certainty  about  the  entitlement  to  DTT  benefits  of 
investment funds and paper-based/cumbersome WHT refund procedures. Blockchain was 
pointed  out  as  a  technology  that  could  help  on  WHT  procedures  (EFAMA  focused 
mainly  in  blockchain  as  way  forward  to  solve  the  issue  of  transparency  within  the 
financial  chain  and  the  digital  TRC).  Further,  it  could  also  provide  visibility  in  spot 
transactions  to  help  identify  dividend  arbitrage  and  fraud.  For  entitlement  to  treaties, 
especially relevant for transparent funds, a matrix could be developed to properly address 
CIVs entitlement to DTT benefits.  

AGC  (85)  outlined  how  the  US  QI  relief  at  source  system  operated.  AGC  welcomed  a 
Quick refund system. Some elements should be clearly defined for AGC to have a final 
position:  liability  allocation  system  and  information  requirements  feasibility.  AGC 
requested  that  any  system  the  Commission  comes  up  with  regarding  WHT  should  be 
easily replicable by third countries (OECD level). Compatibility at international level is 
key point for them. 

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EUROCLEAR  made  a  presentation  stating  how  Member  States  deal  with  WHT 
procedures  in  terms  of  actors  involved  and  systems  in  place.  For  15  Member  States 
Euroclear  provides  with  specific  information  about  the  WHT  system  in  place  (pro  rata 
temporis vs. record date holding) and who is acting as WHT agent (issuer or professional 
WHT agent). The main conclusions drawn from the meeting were: most countries rely on 
record  date  holding  system  (where  the  entitlement  to  receive  the  dividends  is  given  by 
the  settlement  date)  and  most  countries  rely  on  professional  WHT  actors  that  are  in 
charge  of  all  operations  regarding  dividends  payment  (via  agreements  or  registers).  In 
those countries which keep relying on securities issuers, most of those issuers outsource 
WHT tasks on a paying agent. Therefore, it is an extra burden for them to assume the role 
imposed by the Quick refund system but proportionate to the benefit the  harmonisation 
of  the  procedure  might  bring  to  the  investors  and  ultimately  to  them  (since  the  new 
system aims to attract more investment to those EU companies).  

ESMA explained in detail their ‘Final report On Cum/Ex, Cum/Cum and withholding tax 
reclaim  schemes’  released  on  23  September.  On  the  reference  to  TRACE  made  in  the 
report  (ESMA  has  been  in  contact  with  OECD),  ESMA  confirms  it  is  conceived  as  a 
preventive  tool  to  avoid  Cum/Ex  fraud  from  happening.  Even  though  it  does  not 
completely  address  the  problem,  it  definitely  is  a  step  ahead  in  fighting  against  it. 
However, he highlighted that assessing the usefulness of TRACE’s implementation is out 
of  ESMA’s  remit.  On  the  use  of  Central  Security  Depository’s  (CSD)  data  in  the 
detection  of  WHT  reclaim  schemes,  they  concluded  that  it  is  an  interesting  tool  to 
explore but not the definitive solution. The reasons are that the information that could be 
retrieved might not be used in a systematic way in order to build a surveillance tool and 
that information about beneficial owner is not always available. The option of converting 
WHT refund  rights  into  a kind  of new shares to  be traded in  the securities market  was 
disregarded as recommendation by ESMA as it was not explored further and they didn’t 
have the feeling of being an effective solution. About the recommendation on enhancing 
the exchange of info among financial  and tax authorities, it was confirmed as the main 
way forward.  

On  a  follow-up  meeting,  ESMA  pointed  out  they  are  in  regular  contact  with  FISMA´s 
unit in charge of the initiative regarding lifting the restrictions for being able to exchange 
information among financial and tax authorities. . They made a clear explanation of the 
reporting frameworks ESMA has in  place to  help MS detecting  any market  abuse. The 
main reporting scheme is the one based on transaction-by-transaction recording reported 
by each investment firm on daily basis and close to real time (the second following day) 
to the national financial supervisory (NCA) with high level of granularity (place, timing, 
parts  involved,  beneficiaries,  amount,  etc).  Afterwards,  this  huge  amount  of  info  is 
exchanged  among  NCA  within  the  EU.  ESMA´s  role  in  the  procedure  is  to  act  as 
supervisor that the system is properly working, as facilitator for a successful exchange of 
information among NCA. 

EBF signalled that there have been several changes in last years that might make easier 
relief  at  source  initiative  to  succeed,  such  as,  quite  advance  tax  transparency  agenda, 
leveraging digitalisation as one of the priorities at Commission level, COVID crisis make 
more  urgent  than  ever  put  an  end  to  paper-based  procedures,  Cum/Ex  scandals  make 
more  evident 
system  and  urgent  need  of 
harmonisation/standardization at WHT procedures level according to the industry. 

the  need  of  another  WHT 

74 

 
OECD,  in  particular  we  met  with  persons  involved  in  the  TRACE  IP  initiative,  shared 
with us as well some technical ideas: 

1. 

2. 

3. 

4. 

5. 

Risk management might be an element to introduce in a potential relief at 
source system 

WHT  agent  doesn´t  need  to  know  the  identification  data  about  the 
beneficial owner of the investor (final investor).  

Some  commercial  reasons  are  behind  the  fact  that  information  flow 
through the financial chain in TRACE system is done in pooled basis.  

Liability regulation is a key point to take into account for the success of a 
relief at source system 

Digital  solution  such  as  eTRC  would  give  comfort  to  MS  and 
transparency to the system but would not be an actual game changer  

AFME  shared  its  main  concerns  regarding  potential  harmonisation  of  WHT  systems, 
definition of beneficial owner, certainty on the regulation of the liability of FI, clear due 
diligence and potential synergies with Common Standard Reporting. 

Stakeholder targeted surveys 

In October 2022, the following targeted surveys were launched: 

1) 

2) 

Survey of business stakeholders on the impact of costs on the reporting obligation 
sub-options (i) to (iv) under the initiative 

Survey of Authorised Intermediaries on the costs and benefits of the new Finnish 
relief at source system (86)  

For  1)  This  survey  was  intended  to  measure  costs  for  financial  intermediaries  of  the 
potential reporting obligation options under the WHT initiative in comparison to costs of 
their existing reporting systems. 7 replies from business stakeholders were received.  

The  first  section  of  the  Survey  asked  the  financial  intermediaries  what  and  how 
information  to  be  collected  for  the  relief/refund  processes  under  the  proposal  would 
compare  to  the  costs  which  they  already  collect  for  the  same  processes.  3  respondents 
provided  current  costs  but  only  1  respondent  could  provide  both  current  and  estimated 
costs  for  the  new  refund  system.  This  financial  intermediary,  operating  in  12  Member 
States,  replied  that  digitalisation  and  streamlining  of  WHT  reclaim  procedures  would 
result in cost savings. This estimate was based on the following assumptions: 

1) 

2) 

Cost  estimates  are  based  on  the  model  that  would  be  very  similar  to  the 
automated model in Netherlands. 

Fixed cost is done on the assumption that each country would adopt the Directive 
in their way and as such there would be as many variations as there are countries, 
based on its past experience. This estimate is done on the basis of implementation 
in 20 countries. 

75 

 
Based  on  shares  of  the  financial  intermediary  in  key  portfolio  securities  markets  in  the 
EU,  an  extrapolation  for  the  EU  was  made.  For  the  streamlined  standard  refund 
procedures,  the  new  proposal  is  estimated  to  decrease  the  costs  of  submitting  a  WHT 
refund. The respondent noted that the incremental recurrent refund costs would decrease 
(EUR 2.5 million) which would result in a decrease of incremental refund costs of EUR 
13.5 million for financial intermediaries in the EU. Development costs to implement the 
new refund system is estimated to be EUR 4 million by the respondent, resulting in total 
development costs for financial intermediaries in the EU of EUR 21.7 million.  

The  second  section  of  the  Survey  asked  respondents  to  estimate  costs  of  reporting 
information to their tax authority The same financial intermediary estimated an increase 
of 200% of current reporting costs to the tax authorities (that is EUR 2.4 million), due to 
the  new  reporting  obligations  of  the  proposal.  Based  on  this  figure,  the  annual 
incremental  recurrent  reporting  costs  are  estimated  to  increase  by  EUR  13  million  for 
financial intermediaries in the EU. Based on the development costs for implementation of 
the  reporting  system  by  the  respondent  (EUR  10  million),  it  is  estimated  that  total 
development costs for financial intermediaries in the EU will be EUR 54.2 million.  

The third and final section of the Survey asked how costs for the WHT agent/securities 
issuer  would  change  in  the  source  Member  State  if  the  WHT  agent  would  perform  the 
WHT refund and verification process. No respondent could provide current and estimates 
costs for this section. However, one respondent noted that while there would need to be 
implementation costs, recurring costs would be similar to the current systems. 

Although the respondent has significant  market  shares in  key EU markets,  it cannot  be 
assumed to be representative of the portfolio cross-border security market in the EU and 
can  only  provide  an  indication  of  the  incremental  changes  in  costs.  The  number  of 
financial  intermediaries  in  the  final  chain,  and  indeed  the  size  of  the  financial 
intermediary,  would  also  need  to  be  taken  into  account  to  arrive  at  more  robust 
conclusions. However, this data is not available. Nevertheless, the qualitative responses 
of  other  respondents  of  the  survey  confirmed  the  trends  in  the  incremental  changes 
quantified.  

From the replies it appears that financial intermediaries in the EU only report data to tax 
authorities on client investors if the intermediary operates in the same  Member State as 
the investor, or the financial intermediary has withholding tax obligations in that Member 
State. Reporting on a cross-border basis by a financial intermediary (albeit directly or via 
the tax authority of the intermediary) to a source Member State tax authority rarely takes 
place and only for a limited number of relief at source systems (Ireland and Finland were 
noted).    The  absence  of  these  cross-border  reporting  obligations  was  also  confirmed  in 
the bilateral discussions with Member States.     

For  2),  relating  to  the  new  Finnish  relief  at  source  system,  the  Commission  received  6 
replies, from which 3 respondents (87) could provide both the previous and current costs 
of  operating  the  new  Finnish  relief  at  source  system.  These  3  respondents  noted  that 
recurring  costs  had  increased  by  61%  and  incurred  implementation  costs  of  EUR  1.6 
million.  In  terms  of  benefits,  respondents  had  noted  that  risk  for  intermediaries  had 
declined, and that customer satisfaction had increased. However, some respondents noted 
that it was  too  early to  draw  a robust cost-benefit analysis  as the new system had only 
been implemented in 2021. 

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3.5. TADEUS meetings (Tax Administrations European Union Summit) 

3.5.1. 5 May 2022 

During this meeting the main elements of the WHT initiative were presented to the heads 
of tax administrations. The main elements outlined during the meeting were: Creation of 
an  EU  digital  tax  residency  certificate  and/or  exchangeable  directly  among  tax 
administrations; Setting up a common EU standard of information sharing throughout the 
chain of financial intermediaries about the identity of the beneficial owner; Improve the 
exchange of information between tax administrations in order to allow them to check ex-
post  the  correctness  of  the  tax  withheld;  And  establishment  of  an  EU  common  due 
diligence  standard  for  financial  intermediaries  to  check  beneficial  owner’s  data  and/or 
creating  an  EU  wide  registry  of  accepted  financial  intermediaries.  To  wrap-up  the 
meeting  the  delegates  of  Member  States  were  encouraged  to  participate  on  the,  at  that 
moment,  ongoing  public  consultation  on  the  WHT  initiative  and  were  informed  about 
next steps of the initiative. 

3.5.2. 6 May 2020 

It  represented  a  good  opportunity  to  raise  awareness  among  tax  administrations’  heads 
about the magnitude of the problem regarding WHT procedures across the EU and how it 
entails a barrier to the free movement of capitals, thus, with negative consequences over 
the Single Market. 

3.6. High Level Working Party on Taxation (HLWP) 

Held on Toulouse the 5 March 2022, during this meeting with high level representatives 
designated by Member States, the willing to standardize WHT procedures across the EU 
was presented. In particular, the issue at stake was explained as well as the background of 
the  initiative,  then  the  potential  solutions  were  outlined  stating  that  they  would  imply 
greater  digitalisation  and  transparency  for  all  stakeholders.  Finally,  participants  were 
updated on the state of play of the initiative and several questions were posed on Member 
States’  representative  for  better  understanding  of  the  Commission  of  their  respective 
positions. 

4.  

Conclusions 

There  is  large  consensus  among  stakeholders  about  the  problems  arising  with  current 
different WHT procedures and on the need of EU action to tackle such a fragmented and 
inefficient  scenario.  However,  there  were  noticeable  differences  between  the  main 
stakeholder groups on possible options to address WHT reclaim problems in the EU. In 
absence of harmonising WHT rates in the EU or abolishing withholding taxes altogether, 
investors  regarded  the  relief  at  source  system  as  the  most  optimal  solution  in  the  EU 
citing systems like the US QI system as best practice.  

Business  associations  and  financial  intermediaries  also  considered  that  relief  at  source 
could  provide  the  most  optimal  results  but  acknowledged  that  WHT  refund  systems 
would  likely  continue  in  future,  at  least  as  a  back-up  system,  and  as  such  the  WHT 
initiative  should  look  to  standardise  the  current  WHT  refund  processes  and  forms,  in 
particular through the use of digitalisation tools, in order to reduce WHT refund delays. 

77 

 
Member  State  tax  authorities  indicated  a  broad  range  of  views  about  the  possibility  of 
standardised  WHT  procedures  across  the  EU.  Overall,  there  are  two  group  of  Member 
States:  

  Firstly, those where WHT procedures are not a problem either due to a low amount of 
refunds given the internal rate applied to non-resident investors or either because they 
already  have  in  place  a  well-functioning  system  such  as  relief  at  source  or  quick 
refund;  these  countries,  in  general,  indicated  the  importance  of  ensuring  that  any 
solution  should  complement  their  current  WHT  reclaim  processes  without  making 
them step back on what they already have in place. 

  Secondly,  there  are  several  Member  States  that  are  aware  of  some  existing 
inefficiencies related to their current WHT procedures and are open to  hearing how 
possible  reforms  could  improve  their  current  systems.  These  Member  States  have, 
nonetheless,  raised  the  importance  of  striking  a  balance  between  making  efficient 
WHT procedures and keep the control over processes to prevent previous recent tax 
abuses like Cum/Cum and Cum/Ex.  

78 

 
 
 
Annex 3: Who is affected and how? 

Practical  implications  of  the  initiative:  The  initiative  will  impact  portfolio  investors, 
financial intermediaries and tax administrations directly and Member States indirectly by 
attracting more investment to the companies located in the EU and ultimately impacting 
Member States’ GDP. 

1)  Portfolio investors will be impacted in the sense they will have easier and more 
direct access to tax treaty benefits  and, in particular, to reduced tax rates on the 
WHT levied on cross-border passive income payments.  

2)  Financial intermediaries will be impacted since they will not need to interact with 
diverse rules in the EU as a Quick refund system or relief at source will function 
with a standardised procedure. Further, financial intermediaries will be impacted 
with  regard  to  their  reporting  obligations  to  the  tax  authorities  in  the  source 
Member  State  as  information  reporting  methods  will  be  streamlined  and 
standardised  in  the  EU.  Although  reporting  obligations  are  already  in  place 
between  withholding  tax  agents  in  the  Source  Member  State  and  their  tax 
authorities,  all  intermediaries  in  the  financial  chain  would  need  to  report  to  tax 
authorities in the Source Member States. Further, the information to be reported 
to  the  tax  authority  would  need  to  include,  more  granular  information  on  a 
transaction basis in order to counter tax abuse like Cum/Cum and Cum/Ex.  

3)  Tax  administrations  will  need  to  adapt  their  internal  regulation  to  embrace  the 
changes envisaged under the new WHT system. In particular, tax administrations 
will ensure that they have available the technology needed to allow  eTRC to be 
requested  and  issued  online  and  external  eTRCs  to  be  properly  verified. 
Reporting  systems  would  need  to  be  adapted  by  Member  States  to  take  into 
account the new reporting obligations of financial intermediaries under the refund 
or relief proposal  

4)  Member States will be impacted by making their capital market more attractive to 
investment  and,  therefore,  by  corresponding  macroeconomic  effects  over  GDP 
and wages. Despite the wider economic benefits, tax revenues for Member States 
will  be  expected  to  decrease  as  the  more  efficient  WHT  refund/relief  system 
means that the foregone WHT refund amounts repaid to investors will decrease. 

1) 

Summary of costs and benefits of the preferred option 

I. Overview of Benefits (total for all provisions) – Preferred Option 3 – Quick refund system and Relief at Source 

Description 

Amount 

Direct benefits 

Comments 

-  Decrease 

in 
Investors 
foregone WHT reclaims due 
to  more  efficient  refund 
procedures 

EUR  5,17  billion  on  an  annual  basis  (includes 
reduced  administrative  costs  of  409  million  per 
year  related  to  a  decrease  in  paperwork  for  EU 
investors) 

Investors will be the main beneficiary with 
less  foregone  WHT  refunds  and  prompter 
WHT refunds. 

administrations 

–
liability 
and 
tax 
to  prevent 
like  Cum/Ex  and 

Tax 
standard 
allocation/sanctions, 
measures 
abuse 
Cum/Cum. 

available. 

quantification 

Reporting 
No 
requirements  of  financial  intermediaries  and 
WHT  agents/securities 
tax 
authority of the Member State of the investment 
will  help  detect/prevent  tax  abuse  and  achieve 
resources 
swifter  WHT  procedures.  Better 
allocation.  Ensuring  enforceability  of  liability 

issuers 

the 

to 

their  national  systems 

from 
Tax  administrations  will  benefit 
information  reporting  which  they  can  use 
with 
risk 
assessment  purposes.  Benefits  will  depend 
on  whether  Member  States  have  national 
WHT anti-abuse rules already in place, and 
how  adequate  Member  States  national 

for 

79 

 
systems are to utilise such data.  

Financial 
macro economic impact 

intermediaries  -

rules on financial intermediaries will benefit tax 
recovery/cross-border cooperation. 

Increase  in  investment  as  described  in  the 
macro-economic 
for  capital  will 
indicator 
benefit financial intermediaries that will increase 
its business/turnover. Decrease in recurring costs 
for  financial  intermediaries  due  to  streamlined 
standard refund procedures, in particular relating 
to the digitalisation aspects of the  initiative  like 
the use of the eTRC. The recurring cost savings 
are  expected  to  be  EUR  13.5  million  for 
financial intermediaries in the EU. 

Indirect benefits 

Member  States  –  macro-
economic impact 

Increase in GDP for the EU of 0.025%. Option 3 
will also have a positive impact on other macro-
economic  indicators  like  capital,  wages,  and 
employment. 

Nevertheless,  tax  revenues  received  by 
Member  States  would  decrease  due  to  less 
foregone WHT refunds for investors 

Administrative cost savings related to the ‘one in, one out’ approach 

One-off 

Recurrent 

Comments 

Investors  

Financial intermediaries 

Decrease  in  costs  for 
investors  of  EUR  409 
million  per  year  due 
to  costs  associated 
the  paperwork 
with 
the 
decreasing  and 
streamlining 
of 
different  requirements 
per  Member  State  for 
the process. 

The  estimate  is  based  on  the  assumption 
that Option 3 would lead to a 75% decrease 
in the incurred costs that investors have for 
the  current  reclaim  systems.  Under  Option 
2,  where  full  benefits  of  reduction  of 
the 
investor  costs  would  be  obtained, 
incurred  costs  are  estimated  at  EUR  970 
million  per  year,  therefore  75%  of  this 
amount is EUR 730  million.  Subsequently, 
56%  is  applied  to  the  730  million  in  order 
to reflect the part of savings allocated to EU 
investors  in  accordance  with  the  origin  of 
investment  stated  in  table  1  of  the  JRC 
study included in Annex 5.  

for 

Decrease  in  recurring 
costs 
financial 
intermediaries  due  to 
streamlined  standard 
refund  procedures,  in 
particular  relating  to 
digitalisation 
the 
the 
aspects 
initiative  like  the  use 
of 
the  eTRC.  The 
recurring  cost  savings 
to  be 
are  expected 
EUR  13.5  million  for 
financial 
intermediaries  in  the 
EU. 

of 

II. Overview of costs – Preferred option- Option 3 Combination Quick refund system and Relief at Source 

Citizens/Consumers 

Financial intermediaries and 
WHT agents/securities issuers 

Tax Administrations 

80 

 
 
 
 
 
 
 
 
 
 
Direct 
administrative  
costs 

Direct adjustment 
costs 

Direct regulatory 
fees and charges 

Direct 
enforcement costs 

Indirect costs 

Implemen
ting 
an 
eTRC   

Standard 
refund 
procedure 

Direct 
administrative 
costs  

Direct adjustment 
costs 

Direct regulatory 
fees and charges 

Direct 
enforcement costs 

Indirect costs 

Reporting 
requireme
nts  

Direct 
administrative 
costs 

One-off 

Recurrent 

One-off 

Recurrent 

One-off 

Recurrent 

EU27 
recurrent 
costs  for  an 
are 
eTRC 
to 
expected 
be 
between 
EUR  972.000 
and 
10.8 
million. 

EU27 
Developme
nt  costs  for 
up  
setting 
eTRC: 
an 
4,9 
-  54 
million.  

Current  WHT 
refund 
submission 
systems  would 
be 
need 
to 
to 
adapted 
meet 
new 
requirements, 
including 
digitalisation. 
The 
development 
costs 
financial 
intermediaries 
have 
estimated 
EUR 
million 
financial 
intermediaries 
in the EU. 

been 
at 
21.7 
for 

for 

 Current 
reporting 
systems 
financial 
intermediaries 
the 
to 

tax 

of 

81 

Standard 
refund 
procedures  will 
entail  recurrent 
cost savings for 
financial 
intermediaries 
in  the  EU  and 
as 
are 
such 
included  in  the 
table  above  for 
benefits. 

costs 
financial 

Recurrent 
annual 
for 
intermediaries 
are  expected  to 
be  EUR  13.0 

Setting  up 
reporting 
system 
to 
receive  data 
would  incur 
1.4 
EUR 

Recurrent 
costs  for  tax 
administratio
ns 
receiving 
data 

from 

of 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
million.  

authorities 
would  need  to 
be  adjusted  to 
reflect  the  new 
requirements. 
Development 
cost  costs  for 
reporting  have 
been  estimated 
at  EUR  54.2 
for 
million 
financial 
intermediaries 
in the EU.  

financial 
intermediarie
are 
s 
expected 
to 
be  20%  of 
implementati
on  costs  (that 
is  EUR  3.5 
million 
per 
annum) 

million  for 
implementa
tion 
costs. 
Therefore, 
EUR  costs 
are 
estimated  at 
EUR  18.2 
in 
million 
to 
relation 
13 
the 
Member 
States 
that 
would  need 
to 
implement 
the system.  

intermediaries 
standard 

for 
Minimal  costs  expected 
from 
financial 
due 
introducing 
diligence, 
liability 
standard 
allocation  and  multiple  requests 
on a bulk basis 

tax 

 Minimal  costs  expected 
administrations 
for 
from  introducing  standard 
standard 
due  diligence, 
liability 
and 
multiple requests on a bulk 
basis 

allocation 

Costs related to the ‘one in, one out’ approach 

Expected  reduction  in  tax 
revenues estimated at EUR 
2.2 billion/year 

for  
and 

Development 
costs 
reporting 
streamlined 
refund 
procedures  are 
estimated  to  be 

Recuring  costs 
for 
financial 
intermediaries 
are  EUR  13 
million. 

82 

Direct adjustment 
costs 

Direct regulatory 
fees and charges 

Direct 
enforcement costs 

Indirect costs 

Direct 
administrative 
costs 

Direct adjustment 
costs 

Direct regulatory 
fees and charges 

Direct 
enforcement costs 

Indirect costs 

Direct adjustment 
costs  

Indirect 
adjustment costs 

Administrative 
costs (for 
offsetting) 

Standard 
due 
diligence, 
liability 
allocation 
and 
multiple 
requests  

Total   

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2) 

Relevant sustainable development goals 

75,9 
for 

EUR 
million 
financial 
intermediaries 

III. Overview of relevant Sustainable Development Goals – Preferred Option 3 
Relevant SDG 

Expected progress towards the Goal 

Comments 

SDG – 8 Decent work and 
economic growth 

For  option  3  the  initiative  will  have  a  positive 
macro-economic  impact  on  economic  growth 
through  an 
in  GDP,  capital  and 
employment.  

increase 

Option 3 will lead to an increase in GDP of 
0.025%.  Capital  investment,  wages  and 
employment is expected to slightly increase  

SDG – 9 Industry, 
innovation and infrastructure  

Option 3: Issuing the eTRC and the streamlining 
of  reclaim  processes  will  promote  digitalisation 
and the upgrading of technology.   

SDG – 16 Peace, justice and 
strong institutions  

Option  3:  Aim  of  tax  fairness  to  have  a  level 
playing  field  between  the  levying  of  WHT 
between  resident  and  non-resident  investors  in 
the  EU,  helping  to  promote  non-discriminatory 
laws and rules with regard to taxation in the EU. 
This  will  reduce  foregone  WHT  revenue  by 
investors. 
In  addition,  these  options  include  measures  to 
prevent  tax  abuse,  in  particular  reporting  by 
financial  intermediaries,  will  help  to  detect  and 
prevent tax fraud like Cum/Cum and Cum/Ex.  

83 

 
 
 
 
 
 
Annex 4: Analytical methods 

In order to support chapters 5 and 6 of this Impact Assessment a number of studies were 
provided  by  the  JRC  to  measure  the  costs  incurred  by  investors  of  the  current  WHT 
reclaim systems in the EU as well as the potential economic benefits of a WHT reclaim 
reform in the EU.  

JRC has provided us along the years with different studies in relation to the estimates of 
the  WHT  costs  and  the  dynamic  effect  of  potentially  removing  all  WHT  costs.  The 
relevant economic studies for this Impact Assessment are: 

IN RELATION TO WHT COSTS: 

a.  In 2009 the Commission put  forward a Recommendation to  the Member 
States on the simplification of withholding tax relief procedures that was 
accompanied by an impact assessment (IA). The economic analysis in the 
IA  was  prepared  by  the  JRC  (first  study  on  cost  of  WHT  relief 
procedures,  where the costs  amount to EUR  8,4 bn). This study can be 
consulted online in the following link: 10-2009_STUDY.doc (europa.eu) 

b.  In 2016, the JRC produced updated estimates of the costs associated with 
the  procedures  for  withholding  tax  relief,  following  the  methodology 
adopted in the 2009 IA (second study on costs of WHT relief procedures, 
where  the  costs  amount  equally  to  EUR  8,4  bn  but  with  different 
breakdown among components). A summary of this study is compiled in 
this Annex 4. 

c.  In  2021,  after  the  publication  of  the  Action  plan  for  fair  and  simple 
taxation  supporting  the  recovery  strategy,  JRC  was  requested  again  to 
update the figures on WHT relief procedures costs (third study on costs 
of  WHT  relief  procedures,  where  the  costs  amount  to  EUR  5,52  bn). 
Attached to Annex 5 of the current IA. 

d.  In  2022,  given  the  changing  economic  scenario  regarding  interest  rates, 
JRC  updated  again  its  study  (fourth  study  on  WHT  costs  amounting  to 
EUR 6,62 bn). A summary of this study is compiled in this Annex 4 

IN RELATION TO THE DYNAMIC IMPACTS: 

E.  EMPIRICAL  ECONOMETRIC  MODEL  TO  TEST  SENSIBILITY  OF 
FOREIGN  PORTFOLIO  INVESTMENT  TO  NON-REFUNDABLE  WHT. 
COMPILED IN ANNEX 6 

F.  MACROECONOMIC  IMPACT  OF  REDUCING  THE  COST  OF  WHT  IN 
TERMS OF GDP, WAGES, CAPITAL, ETC. COMPILED IN ANNEX 6 

In this Annex 4 we give the reader an overview of all above mentioned JRC studies: 

1) 

Quantifying the costs of withholding tax procedures for investors in the EU 

For the purposes of this Impact Assessment, an estimation was made by the Commission 
services  of  the  various  costs  that  are  incurred  by  investors  regarding  their  current 
withholding  tax  reclaim  procedures  based  on  the  methodology  used  in  the  economic 
impact SWD attached to 2009 Recommendation on WHT88. Such estimation represents 
current costs according to baseline scenario. 

84 

 
Using  cross-border  securities  holdings  in  the  IMF  ‘Coordinated  Portfolio  Investment 
Survey’  (CPIS),  the  methodology  for  the  estimation  includes  three  different  types  of 
costs: 

  The  opportunity  costs  due  to  delayed  claims  and  payments  of  tax  refunds:  it  is 
estimated  as  the  average  delay  period  times  the  risk-free  rate  times  the  total 
amount of tax relief  (i.e., the theoretical entitlements). An average delay  of one 
year and a risk-free rate of 0.6% is assumed, applied to an estimated average rate 
of withholding tax rate relief of 7.4%; 

  The foregone tax relief is attributable to retail investors (89) who do not claim their 
tax refunds and is assumed to amount to 10% of the total cross-border investment. 
This  amount  is  derived  from  the  CPIS  sectoral  data  for  retail  investors  (NHN 
sectors); 

  The actual costs related to the reclaim procedures are assumed to account for an 
average of 2% of the refundable amounts. The calibration of the parameter is the 
same as in the 2009 economic impact SWD. This third factor is the actual amount 
of occurring costs related to reclaim procedures (paperwork etc.). The cost drivers 
relate to intermediaries providing the paperwork and diversity of source country 
requirements,  as  well  as  costs  of  the  source  Member  State  of  investment  for 
verifying investor refund claims. 

Table  [1]  below,  using  a  reference  period  of  2008-19  CPIS  data,  indicates  the  total 
cost  estimates  broken  down  for  both  within-EU  and  total  cross-border  investments, 
including  both  EU  and  non-EU  cross-border  investors.  The  figure  for  total  cross-
border investments includes both investors from EU and non-EU countries.  

Table [1]. Estimated cost of WHT relief procedures – breakdown by cost driver (EUR bn) 

   Cross-border investment in the EU  

total  

within-EU 

1) Opportunity cost of late payments 

2) Foregone tax relief 

3) Incurred costs  

0.28 

4.37 

0.87 

0.16 

2.44 

0.49 

Total costs 

5.52 

3.09 

Source: JRC calculations.  

85 

 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 

 

The  earlier  estimation  from  2016  using  the  same  methodology  amounted  to  total 
costs  of  approximately  EUR  8.6  billion.  Although  the  amount  of  cross-border 
security holdings has actually increased between both reference periods, the decrease 
in costs between the reference periods 2003-14 and 2008-19 can be attributed to the 
following factors:  

the return rate on investments has significantly dropped in recent years (in particular 
the interest rate).  

the risk-free interest rate has dramatically decreased in recent  years, which explains 
the  significant  reduction  in  opportunity  costs  (opportunity  costs  for  not  having  the 
money back yet due to an ongoing WHT refund procedure).  

In  addition,  the  differences  between  the  national  rates  and  the  tax  treaty  rates  have 
been reduced from 2014 to 2019 in some Member States, which reduces the impact 
of inefficient WHT procedures.  

These  scenarios  assume  of  the  introduction  of  a  relief  at  source  system,  and  the 
assumption that the need for refunds will be eliminated. In that sense it can be argued 
that these estimations are higher end estimates. The extent to which this assumption 
is valid is assessed in chapter 6 of this Impact Assessment. At the same time, given 
the  data  limitations,  a  number  of  assumptions  had  to  be  made  which  are  likely  to 
underestimate  the  actual  costs  of  the  current  WHT  procedures.  In  particular,  the 
estimations  are based on the CPIS Survey,  which captures direct  holdings for retail 
investors but not indirect holdings (90). Indirect security holdings are significant in the 
EU with investors facing the same refund issues as direct holding investors in terms 
of  refunds.  These  estimations  have  not  been  able  to  be  precisely  quantified  for  this 
Impact  Assessment.  However,  some  approximate  estimations  are  available.  Data 
from the ECB indicates that approx. 31% of investment funds in the EU are indirectly 
held by retail investors (91). EFAMA indicates that retails investors account for 19% 
of fund sales in  the EU  compared to  the 10%  estimation  used for the JRC data (92). 
Therefore,  the  estimated  costs  of  EUR  4.9  billion  are  likely  to  be  substantially 
understated. 

Furthermore,  the  current  increase  of  interest  rates  and  among  them  the  free-risk 
interest  rate  would  mean  an  increase  of  the  costs  of  the  base  line  option  if  this 
increase were to be maintained in the future. 

The JRC provided also an estimate taking into account a long-term free interest rate 
over  the  period  2000-2019  of  1.7%,  instead  of  0.6%,  used  for  the  risk-free  interest 
rate in the 2021 study. With such an increase of interest rate, total costs remain quite 
similar at EUR 6.62 bn with only an increase of 19.7%. 

Estimated cost of WHT relief procedures using long-run interest rates  
 – breakdown by cost driver (EUR bn) 

   Cross-border investment in the EU  

total  

within-EU 

86 

 
  
  
  
  
  
  
  
  
  
  
  
1) Opportunity cost of late payments 

2) Foregone tax relief 

3) Incurred costs  

0.82 

4.83 

0.97 

0.46 

2.72 

0.54 

Total costs 

6.62 

3.73 

Source: JRC calculations. 

In  addition  to  the  effects  of  costs  of  WHT  relief  procedures,  the  simulation  also 
estimated what effects the procedures would have on GDP in the EU using a Cobb-
Douglas  function.  Table  [2]  below  indicates  that  for  all  investment  in  the  EU,  the 
costs of WHT relief procedures represent a cost amounting to 0.031% of EU GDP. 

Table [2] Impacts on GDP of eliminating the cost of WHT relief procedures 

Source: JRC calculations. 

2) 

The effect of non-refundable withholding taxes on FPI and macro-economic 
indicators  

Further,  the  following  economic  simulations  were  prepared  by  the  Commission 
services for the purpose of this Impact Assessment: 

  An empirical econometric model to test the sensitivity of foreign portfolio 

investment (FPI) to non-refundable withholding taxes; 

  The macro-economic impact of reducing the cost of withholding tax relief 

procedures making use of the CGE model CORTAX (93). 

1) 

Sensitivity of foreign portfolio investment to non-refundable withholding taxes  

Table  [2]  above  indicates  costs  arising  from  the  current  refund  withholding  tax 
procedures  from  the  perspective  of  the  investors.  From  a  macro-economic 
perspective, opportunity costs also arise as inadequate refund processes hold back full 

87 

Wihin-EUAssumed share of cross-border assets35%25%Gross impact on financing costs0.29%0.21%Reduction in the cost of capital0.09%0.06%Increase in GDP0.031%0.022%Total Cross-border investment in the EU  
  
  
  
  
  
  
  
  
  
  
  
 
  
 
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
integration of the securities markets in the EU and thus hinder their functioning as the 
main channel of cross-border private risk sharing for firms and households. 

As  with  a)  above,  this  simulation  also  uses  the  IMF  CPIS  Survey  as  input  data  but 
further  analyses  the  data  by  holding  sector  (that  is  financial  corporations,  non-
financial corporations, and households etc.) and by type of security (that is debt and 
equity). Using a gravity-style model the simulation aims to infer the effects of non-
refundable withholding taxes on FPI (foreign portfolio investment) using a panel of 
83 countries, including all Member States, for the period between 2005 and 2019. 

For  all  FPI  stock  of  equity  and  debt  holdings  (that  is  not  sector  specific),  the 
simulation  found that a  10pp reduction in  non-refundable withholding tax increases 
FPI stock of equity holdings by between 5.2% and 9.3% (point estimate 8.2%). The 
corresponding effect on FPI stock of debt holdings is slightly lower and less precise, 
estimated  between  2.2%  and  8.1%  (point  estimate  6.2%).  Household  sector  data  is 
available under the CPIS Survey which could potentially help to identify the specific 
impact  on  retail  investors.  However,  data  used  for  the  sector  analysis  had  a  much 
smaller  sample  size  which  precludes  sufficient  within  country-pair  variations  over 
time to infer the impact of non-refundable withholding taxes on FPI stock holdings. 
A  second  more  fundamental  issue  with  using  CPIS  household  sector  data  is  that  it 
does  not  include  indirect  holding  of  securities  to  retail  investors  through  funds,  as 
discussed  above,  therefore  both  limitations  mean  that  the  total  stock  of  FPI  data 
should be used instead of sector specific FPI data.  

2) 

Macro-economic impact of reducing the cost of withholding tax relief procedures 
making use of the CGE model CORTAX  

The  Commission  economic  model  CORTAX  which  analysis  tax-benefit  policies  of 
Member States was used to assess the effects of removing tax overpayments (defined 
as  non-refundable  withholding  taxes).  The  assessment  is  made  on  the  impact  on 
GDP, investment, employment and tax revenues. Using data from all Member States, 
the  effect  on  4  macro-economic  indicators  is  estimated:  EU27  GDP,  capital,  wages 
and  employment.    As  indicated  in  Table  [3]  below,  EU27  GDP  is  projected  to 
increase by 0.047%, capital/wages would rise, respectively, by 0.137% and 0.048%, 
and  employment  would  increase  marginally  too  as  compared  to  the  current  status 
quo. Tax revenues are expected to decrease because even though increase investment 
and employment will lead to higher tax revenues, the correct refunds of WHT by tax 
authorities will lead to an overall decrease of 0.039% of tax revenues.   

88 

 
Table [3]. Macro-economic impact on removing tax overpayment 

Source: JRC calculations. 

For robustness purposes, given that they use different methodologies, the change of 
0.047% in GDP according to this simulation closely matches the 0.031% increase in 
GDP estimated in simulation in Section 6.1.4.4 Figure [13] above.  

These  scenarios  in  (i)  and  (ii)  assume  a  relief  at  source  system  being  put  in  place 
which  implies  that  the  need  for  refunds  will  be  eliminated.  Furthermore,  given  that 
Foreign  Portfolio  Investment  (FPI)  is  not  explicitly  modelled  in  CORTAX,  in  this 
exercise it is assumed that FPI and FDI (foreign direct investment) are of comparable 
size in each source country. However, FPI levels are typically smaller than FDI and 
reflect large cross-country heterogeneity. To the extent that countries receive less FPI 
than  FDI,  the  national  effects  are  likely  to  be  smaller  than  simulated  here. 
Conversely, the effects would be larger in those cases where FPI is greater than FDI.  

89 

Parameter ChoiceModel ClosureTabCapital Wage Employm. GDP Shift_CIT Rev_CIT Rev_tax WelfareGovernment Expenditures1,10,1370,0480,0060,047-0,003-0,058-0,0390,03Transfers to old1,20,1730,0470,0430,083-0,003-0,057-0,026-0,007Government Expenditures2,10,230,0790,010,076-0,004-0,102-0,0710,049Transfers to old2,20,2950,0770,0770,141-0,004-0,1-0,047-0,018Government Expenditures3,10,3340,1130,0140,107-0,006-0,156-0,110,069Transfers to old3,20,4370,1090,1190,208-0,006-0,152-0,073-0,034Government Expenditures4,10,5010,1630,0220,153-0,008-0,246-0,180,099Transfers to old4,20,6680,1570,1930,319-0,008-0,241-0,118-0,07Government Expenditures5,10,4720,1540,0210,146-0,008-0,23-0,1670,094Transfers to old5,20,6270,1490,1790,299-0,008-0,225-0,11-0,063Average change among EU27 countries with respect to status quo (in %)Same elasticity for all countries, all years since 2012, Median (beta_c = 1.171948)Same elasticity for all countries, 2012, Median (beta_c = 1.464934)Same elasticity for all countries, 2019, Unweighted average (beta_c = 1.796668)Same elasticity for all countries, 2019, Weighted average (beta_c = 1.747458)Same elasticity for all countries, 2019, Median (beta_c = 0.8203627) 
 
 
 
 
 
Annex  5:  2021  JRC  Study:  Quantifying  the  Costs  of  Withholding 
Tax Relief Procedures  

EUROPEAN COMMISSION 

JOINT RESEARCH CENTRE 

Directorate B – Growth and Innovation  

25 February 2021 

QUANTIFYING THE COSTS OF WITHHOLDING TAX RELIEF PROCEDURES  

Authors: JRC 

Introduction and policy background 

Procedures  for  granting  withholding  tax  relief  on  cross-border  investment  are  a  major 
and  long-standing  barrier  to  the  free  movement  of  capital  that  hinders  the  good-
functioning of the Single Market. The Commission has been trying to tackle this issue for 
a  long  time,  both  from  a  taxation  perspective  and  also  in  the  context  of  the  Capital 
Markets  Union  (CMU).  After  the  so-called  Giovannini  reports  of  the  early  2000s,  in 
2009,  the  Commission  put  forward  a  Recommendation  to  the  Member  States  on  the 
simplification  of  withholding  tax  relief  procedures  that  was  accompanied  by  an  impact 
assessment (IA) (94). The economic analysis in the IA was prepared by the JRC.  

In 2016, upon request by DG FISMA, the JRC produced updated estimates of the costs 
associated  with  the  procedures  for  withholding  tax  relief,  following  the  methodology 
adopted  in  the  2009  IA  (95).  Given  its  relevance  for  the  CMU,  the  Commission  (DG 
FISMA, together with DG TAXUD) was tackling the issue again under objective 6 of the 
CMU  action  plan  "remove  cross-border  tax  barriers"  (96).  The  results  were  presented 
during the 2nd Meeting of the Expert Group on Barriers to Free Movement of Capital in 
the context of the Capital Markets Union, held in Brussels on 26 January 2016. Recently, 
the  Commission  published  an  Action  plan  for  fair  and  simple  taxation  supporting  the 
recovery strategy,  which includes an initiative for introducing  a common, standardised, 
EU-wide system for withholding tax relief at source (97). 

Against this policy background, this study provides a methodological discussion and an 
update of the quantification of the economic impacts presented in chapters 2 and 6 of The 
Economic  Impact  of  the  Commission  Recommendation  on  Withholding  Tax  Relief 
(see 
Procedures 
the 
https://ec.europa.eu/info/sites/info/files/booklet-fisco-09022010_en.pdf 
henceforth 
referred to as the IA). 

Proposals 
, 

FISCO 

and 

90 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
While  the  overall  methodology  used  is  the  same,  relevant  changes  in  data  and 
parameterization to obtain the results are spelled out in the following.  In particular, the 
starting  point  of  the  analysis  is  cross-border  holdings  of  equity  and  debt  and  all  the 
bilateral withholding tax rates applicable in the EU. Then, the study simulates different 
scenarios  of  reduced  withholding  tax  barriers  on  changes  in  the  cost  of  capital  and 
ultimately  the  aggregate  effects  on  output.  As  a  general  caveat,  it  should  be  borne  in 
mind that the whole exercise is performed under certain assumptions on the incidence of 
the costs of relief procedures, because of significant data limitations. Moreover, it gauges 
the aggregate output effect using a very simplified and static framework, which does not 
capture all the macroeconomic spill overs and feedback loops at play in a fully-fledged 
macroeconomic  model.  Therefore,  the  results  should  be  taken  with  caution.  A  more 
detailed  critical  discussion  of  the  results  and  underlying  assumption  is  provided  in 
section 3.  

1. 

Basic facts  

This  section  first  describes  the  data  for  cross-border  holdings  of  equity  and  debt 
securities. Next, we focus on the associated yields. Finally, the withholding tax rates in 
different countries are presented.  

1.1. Cross-border holdings of equity and debt securities  

Data  on  cross-border  portfolio  holdings  are  obtained  from  the  IMF  “Coordinated 
Portfolio  Investment  Survey”  (CPIS).  The  time  series  is  currently  updated  up  to 
December  2019.  The  aggregate  data  for  the  EU  shows  that  the  amount  of  equity 
securities held by nondomestic investors in the European Union (EU27) was 10.7 trillion 
US$ in 2019, up from 6.9 tn in 2014 and 5.1 tn in 2006 (98) Debt securities amount to 11.5 
trillion  in  2019,  the  same  value  recorded  for  2014,  and  up  from  8.8  trillion  in  2006.  . 
Cross-border holdings of EU investors amount to 5.6 and 6.7 trillion US$ for equities and 
debt securities respectively in 2019 (see Table 2).  

As is apparent from Figure 1, the upward trend for stocks of debt securities has reached a 
plateau in the years after the global financial crisis. By contrast, cross-border holding of 
equity  securities,  on  a  similarly  strong  upward  trend  before  2008,  have  been  steadily 
increasing also afterwards, although much less markedly.  

91 

 
 
Table 1. Cross-border holdings of securities in 2019 (in millions of dollars) 

Source: IMF CPIS 

92 

All securitiesEU27EFTAUSAJAPANRESTTOTALInvested inEU2712,315,3611,067,6593,313,4171,012,4624,465,48022,174,380EFTA555,58954,137674,55052,489305,2671,642,032USA4,691,536826,78601,806,5169,158,17016,483,009JAPAN579,861143,7951,154,0270940,8612,818,545REST5,567,779768,7347,983,2311,739,3687,459,80623,518,920TOTAL23,710,1272,861,11213,125,2254,610,83622,329,58466,636,885EquityEU27EFTAUSAJAPANRESTTOTALInvested inEU275,569,494659,3152,434,102261,7481,797,98710,722,646EFTA341,74242,802594,16430,901195,7301,205,340USA2,433,529508,5050620,4453,493,7887,056,267JAPAN336,00395,540931,3010394,7851,757,629REST2,168,234435,3785,505,417991,3293,907,65813,008,015TOTAL10,849,0021,741,5409,464,9841,904,4239,789,94833,749,897DebtEU27EFTAUSAJAPANRESTTOTALInvested inEU276,745,867408,345879,315750,7142,667,49311,451,734EFTA213,84711,33580,38621,588109,536436,692USA2,258,008318,28001,186,0715,664,3829,426,741JAPAN243,85848,256222,7260546,0771,060,916REST3,399,546333,3572,477,814748,0403,552,14810,510,904TOTAL12,861,1251,119,5723,660,2412,706,41312,539,63632,886,987InvestorInvestorInvestor 
 
Figure 1 Cross-border portfolio investment in the EU 

25.000

20.000

15.000

10.000

5.000

0

s
r
a

l
l

o
d
S
U

f
o
n
o

i
l
l
i

B

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

Debt securities

Equity and Investment Fund Shares

Source: IMF, Coordinated Portfolio Investment Survey 

Figure 2 Within-EU cross-border portfolio investment 

s
r
a

l
l

o
d
S
U

f
o
n
o

i
l
l
i

B

14.000

12.000

10.000

8.000

6.000

4.000

2.000

0

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

Debt securities

Equity and Investment Fund Shares

93 

 
 
 
 
 
 
 
 
 
 
Source: IMF, Coordinated Portfolio Investment Survey 

1.2. Yields  

While  holdings  provide  a  picture  of  investors’  cross-border  positions  in  the  EU,  the 
corresponding yields are informative on the associated returns to the investment. In turn, 
these define the cost of capital to issuers. The cost of capital consists of two components: 
(i)  the  cost  of  equity  capital  and  (ii)  the  cost  of  debt.  As  for  the  cost  of  equity,  we 
consider the dividend yield, which measures the realized return to the shareholder once 
earnings are paid  out.  The cost  of debt  is proxied using bond  yields.  Figure 3 plots the 
relevant yields. For bond yields, we plot government debt with 10y maturity. Excluding 
peaks  around  the  outbreak  of  the  global  financial  crisis,  dividend  yields  are  roughly 
stable  over  the  2001-2019  period,  hovering  around  3%.  As  expected,  bond  yields  are 
clearly trending downward, and markedly so as from the sovereign debt crisis.  

Figure 3 Debt and equity yields in the Euro area 

6,00

5,00

4,00

3,00

2,00

1,00

0,00

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

Dividend yield (Eurostoxx 600)

Government bond yield (10-yr benchmark, euro area)

1.3. Withholding taxes  

Following the established methodology, we define the “actual” statutory withholding tax 
rate as the minimum between the domestic tax rate and the tax rate applicable under the 
relevant DTA (if in place). Hence, the actual withholding tax rate is a theoretical rate that 
accounts for the fact that if no DTA is available or the tax rate applied within the Member 
State  (domestic  rate)  is  lower  than  that  in  the  DTA,  the  domestic  rate  is  relevant  for  the 
foreign  investor.  All  the  tax  data  are  obtained  from  the  International  Bureau  of  Fiscal 
Documentation (IBFD). Domestic rates within the EU are reported in table 2 (99). 

94 

 
 
 
 
Taking  into  account  the  amount  of  cross-border  security  holdings  within  the  EU,  the 
weighted  average  domestic  tax  rates  for  interest  income  and  dividends  are  13.0%  and 
18.6%  respectively.  The  corresponding  weighted  averages  for  the  “actual”  statutory 
withholding  tax  rates  are  3.4%  (interest)  and  13.9%  (dividends).  Compared  to  the 
domestic  rates  this  implies  an  average  reduction  of  roughly  7.4  pp  (combined  for 
dividends and interest payments) for non-domestic portfolio investors. 

Table 2. Domestic tax rates (in percent) 

Source: IBFD 

2.  Quantification of the costs associated to WHT relief 

procedures 

This  section  describes  the  calculation  of  the  potential  costs  associated  to  inefficient 
withholding tax relief procedures. It then quantifies the impacts on the cost of financial 
capital and, consequently, on aggregate output. 

95 

Interest DividendsAustria0/25/27.527.5Belgium0/15/3020/30Bulgaria105Croatia1212Cyprus00Czech Republic15/3515/35Denmark015/27Estonia00Finland0/3030France0/7512.8/75Germany0/2525Greece155Hungary1515Ireland0/200/25Italy0/12.5/2626Latvia0/200/20Lithuania15/2015Luxembourg0/1515Malta00Netherlands0/1515Poland2019Portugal28/350/28/35Romania0/16/505Slovak Republic19/350/7/35Slovenia0/2525Spain0/190/19Sweden030 
 
The  costs  related  to  the  current  system  of  WHT  relief  procedures  depend  on  the  total 
dividends and interest payments received by cross-border portfolio investors in the EU. 
The total amount of dividends received in 2019 can be proxied as the average dividend 
yield  (3.0%)  (100)  times  the  amount  of  equity  securities  held  by  non-domestic  investors. 

Box  1.  The  determinants  of  the  costs  from  inefficient  withholding  tax  relief 
procedures  

The IA study identifies and discusses three different sources of costs related to withholding 
tax relief procedures. We illustrate them in turn.  

The  first  element  is  the  opportunity  cost  due  to  delayed  claims  and  payments  of  tax 
refunds.  Delays  in  refunding  the  investor  entail  additional  financial  disadvantages. 
According to the IA study, in general, a time lag of six months is to be expected. However, 
sometimes  in  the  past  the  refund  could  take  years.  The  calculations  are  based  on  the 
assumption of an average delay of one year.  

The second cost component is the foregone tax relief to (small) investors who do not claim 
their tax refunds. There are a number of reasons behind that. Among them: lack of awareness 
(custodian  and  beneficial  owner);  choice  of  non-disclosure;  failure  to  meet  deadlines, 
particularly  where  documentation  is  very  specific  and  time  delimited;  claims  falling  outside 
statute; lack of service offering;  incorrectly filed claims, etc. (see chapter 5.2 of the IA for an 
extensive discussion on the potential reasons and resulting threshold values).  

The third factor is the actual amount of occurring costs related to the reclaim procedures. 
These costs arise from the relevant operations department of the custodian or of an external 
service  provider;  the  paper  work  and  diversity  of  source  country  requirements;  and  from 
investor referencing at  refund crediting (see chapter 5.1 of the  IA for more information  on 
the various relevant components).  

The total  amount of interest  payments received is  estimated accordingly  as the average 
interest  rate  (3.7%)  (101)  times  the  amount  of  cross-border  debt  securities.  We  consider 
two  alternative  aggregates  for  the  quantification:  i)  within-EU  cross-border  investment; 
ii) total cross-border investment in the EU. The latter aggregate comprises both within-
EU  cross-border  investment  and  foreign  (extra-EU)  investment.  Based  on  the  observed 
stocks  and  yields,  estimated  within-EU  cross-border  payment  flows  amount  to  417 
billion  US$  or  330  billion  €  (using  an  average  2008-2019  USD/€  exchange  rate  of 
1.264). Similarly, total cross-border payments, including to extra-EU investors, are in the 
range of 746 billion US$ or 590 billion €.  

As detailed in Box 1., three different cost sources can be identified, as follows:  

1) 

The  opportunity  cost  due  to  delayed  claims  and  payments  of  tax  refunds:  it  is 
estimated  as  the  average  delay  period  times  the  risk  free  rate  times  the  total 
amount  of  tax  relief  (i.e.,  the  theoretical  entitlements).  We  assume  an  average 
delay  of  one  year  and  a  risk-free  rate  of  0.6%  (102),  applied  to  the  estimated 
average rate of withholding tax relief of 7.4%. 

96 

 
 
2) 

3) 

In line with the IA study, the foregone tax relief attributable to (small) investors 
who  do  not  claim  their  tax  refunds  is  assumed  to  amount  to  10%  of  the  total 
cross-border investment. 

The actual costs related to the reclaim procedures are assumed to account for an 
average of 2% of the refundable amount. The calibration of the parameter is the 
same as in the IA study (103).  

Table  3  reports  the  total  cost  estimates,  broken  down  by  the  different  components,  for 
both within-EU and total cross-border investments. The latter scenario implicitly assumes 
that the calculated gap for withholding tax rates applies also to investment from extra-EU 
countries.  

Table 3. Estimated cost of WHT relief procedures – breakdown by cost driver (EUR 
bn) 

   Cross-border investment in the EU  

total  

within-EU 

1) Opportunity cost of late payments 

2) Foregone tax relief 

3) Incurred costs  

Total costs 

Fraction affected due to missing DTA 

0.28 

4.36 

0.87 

5.52 

0.90 

0.16 

2.44 

0.49 

3.09 

0.90 

Total effective costs 

4.97 

2.78 

Source: JRC calculations.  

2.1 Sensitivity analysis 

As  Table  3  shows,  the  main  cost  driver  from  withholding  tax  relief  procedures  is  the 
foregone tax relief stemming from the disincentive effects and other complexities linked 
to  the  existing  relief  procedures.  In  the  baseline  calculations,  it  is  assumed  that  these 
affect 10% of relevant flows. The fraction of affected payments plays a crucial role in the 
estimation of the cost component. In Table 4 we show how the cost estimates (including 
for the total cost aggregate) evolve under different parameterization of this variable (104). 

97 

 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
Table 4. Foregone tax relief (EUR bn) – sensitivity analysis for different values of 
payments for which claims are foregone 

Cost due to foregone claims 

Total cost  

   Cross-border investment in the EU  

   Cross-border investment in the EU  

Total  

Within-EU 

Total  

Within-EU 

Fraction 
of 
payments (%) 

affected 

5 

10 

15 

20 

25 

30 

2.18 

4.36 

6.55 

8.73 

10.91 

13.09 

1.22 

2.44 

3.66 

4.88 

6.10 

7.32 

3.34 

5.52 

7.70 

9.88 

12.07 

14.25 

1.87 

3.09 

4.31 

5.53 

6.75 

7.97 

Source: JRC calculations.  

2.2 Impacts on the cost of capital  

Following the analysis carried out in the IA study, the potential change of the effective 
tax  burden  is  calculated  as  the  ratio  of  the  total  annual  costs  to  the  corresponding 
estimated  total  amount  of  dividends  and  interest  payments.  The  gains  from  eliminating 
these  costs  translate  into  a  reduction  in  the  cross-border  cost  of  financing  of  equal 
magnitude. However, one needs to take into account the fact that cross-border portfolio 
holdings constitute only a fraction of all financing flows. In this respect, in line with the 
IA  study,  we  assume  that  the  share  of  cross-border  holdings  is  25%  for  within-EU 
investment. This calibration is consistent with the available evidence (105). When it comes 
to total cross-border investment to the EU, we use Eurostat data to calibrate the relevant 
parameter, set at 35% (106).  

This reduction in the cost of financing influences only that part of real investment that is 
financed  via  debt  and  new  equity.  If  investment  projects  are  financed  by  retained 
earnings, dividend taxes have, under certain assumptions, no impact on investments. We 
use  data  from  the  ECB  report  on  Corporate  finance  and  economic  activity  in  the  Euro 
area  (2013)  and  calculate  a  fraction  of  30%  for  external  financing  sources  of  non-
financial  corporations  (the  value  used  in  the  previous  study  of  20%  was  taken  from  an 
empirical cross-country study by Corbett and Jenkinson (1997)).   

Finally,  we  perform  a  simple  static  exercise  to  get  a  sense  of  the  aggregate  economic 
impacts. Specifically, we plug the estimated reduction in the cost of capital figure into a 
Cobb-Douglas  production  function  (with  a  calibrated  capital  share  of  0.35  and  a 
substitution elasticity of -1), we ultimately obtain the corresponding increase in GDP.  

Table 5 reports the results for the different simulated scenarios.  

98 

 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
Table 5. Impacts of eliminating the cost of WHT relief procedures 

Source: JRC calculations.  

3.  Discussion  

As  mentioned  in  the  introduction,  there  are  a  number  of  caveats  with  respect  to  the 
analysis which suggest caution in the interpretation of the results. These are spelled out in 
the following:   

1) 

2) 

3) 

4) 

Given  the  important  data  limitations,  the  methodology  relies  on  aggregate 
financial  data.  In  this  respect,  it  is  worth  noting  that  stocks  are  quite  persistent, 
and on a slight upward trend over the medium term. By contrast, yields are on a 
marked downward trend, particularly in the more recent years. The lower interest 
and dividend rates are only partially compensated by the increased stock of cross-
border holdings. Moreover, in times of strongly declining rates, the choice of the 
reference  period  (2008-2019  in  the  current  study,  2003-2014  in  the  previous 
update)  affects  significantly  the  estimated  values.  For  instance,  the  value  of  the 
risk free interest is assumed equal to 0.6% (3-m Euribor) in the current exercise, 
whereas it was 1.9% in the previous update.  

In the previous study the potential impact on the cost of capital was obtained as 
the ratio between the change in the flow of payments induced by the removal of 
the tax barriers to the effective flow of payments. Arguably, one could compute 
instead the ratio of the estimated change in the flow of payments to the stock of 
capital measuring the financial effort of the investment.  

The  GDP  result  is  significantly  affected  by  two  parameters,  namely  the 
percentage  of  cross-border  holdings  and  the  percentage  of  external  financing 
sources. Values for the Euro Area (based on ECB data) are used in the exercise. A 
sensitivity  analysis  could  be  provided  on  this.  Moreover,  the  overall  impact 
would be very different (i.e. lower) once we choose to adopt an approach where 
the impact on the user cost of capital is computed with respect to the investment 
(see point above). 

When calibrating the production function, the user cost of capital (instead of the 
financial  cost  of  capital)  could  be  used,  which  would  take  also  corporate  tax 
provisions  (statutory  tax  rates  and  tax  depreciation  for  physical  capital)  into 
account. This would require substantial additional data collection and modelling 
complications.  

99 

Wihin-EUAssumed share of cross-border assets35%25%Gross impact on financing costs0.29%0.21%Reduction in the cost of capital0.09%0.06%Increase in GDP0.031%0.022%Total Cross-border investment in the EU  
 
4.   Further JRC work on withholding taxes and cross-border 

investment (107) 

In addition to the present note, the JRC has planned further analyses to shed light on the 
effects  of  withholding  taxes  (and  related  relief  procedures)  on  cross-border  investment, 
and  aggregate  economic  variables.  The  envisaged  timeline  for  these  analyses  is 
consistent with that of the policy process, to allow the results being incorporated in the 
Impact Assessment for the forthcoming Commission proposal for introducing a common, 
standardised, EU-wide system for withholding tax relief at source.  

4.1 Econometric modelling (JRC.B1 and JRC.B2) 

First,  JRC.B1  and  JRC.  B2  will  collaborate  on  an  empirical  study  with  the  goal  of 
estimating  the  elasticity  of  bilateral  portfolio  investment  holdings  to  cross-border 
withholding taxes. Preliminary analysis points to substantial variation in the country-pair 
withholding  taxes  on  dividend  and  interest  payments.  This,  combined  with  data  on 
bilateral  stocks  of  equity  and  debt  securities  available  from  the  IMF  CPIS,  makes  it 
possible to use panel data gravity-style regressions. The results from this analysis should 
make it possible to estimate the impact of withholding tax relief procedures on bilateral 
portfolio investment holdings. 

4.2 General equilibrium modelling (JRC.B2) 

Second, JRC.B2 will improve the current calculations for the costs of capital by using the 
general equilibrium model CORTAX. The model has already been used in past  IAs for 
assessing  reform  proposals  for  corporate  and  digital  taxation.  Interestingly  for  this 
analysis, CORTAX captures cross-border flows across member states. The current model 
version will be extended in order to capture bilateral withholding tax rates in the after-tax 
rate of return on debt and equity investment. Furthermore, in the calibration, the rate of 
return  on  debt  and  equity  will  have  to  distinguish  between  domestic  and  cross-border 
sources of finance. This explicit way of modelling will allow us to observe the impact on 
cost-of-capital endogenously in the model. Then, by simulating the withholding tax relief 
reform, we can observe the macro-economic effects of the reform proposal, including its 
effects on GDP and welfare. 

Appendix 1 – Variables and data sources  

Variable 

Source 

Domestic and bilateral cross-border withholding tax rates on 
dividends and interest income in the EU  

IBFD 

Cross-border stock holdings of equity and debt securities  

IMF CPIS 

Average yields on corporate bonds 

Refinitiv Datastream  

Dividend yield on Stoxx Europe 600 

Refinitiv Datastream  

3-month Euribor rate (proxy for the risk free interest rate) 

Refinitiv Datastream 

Share of external finance on total financing of non-financial 
corporations  

100 

report  on  Corporate 

ECB 
economic activity in the Euro area (2013) 

finance  and 

 
Share of total cross-border investment in the EU  

Eurostat 
(nasa_10_f_bs) 

Financial 

Balance 

Sheet 

(2018).  Disentangling 

ECB 
area 
portfolios:  new  evidence  on  cross-border 
securities holdings 

euro 

Share of within EU cross-border investment in the EU  

101 

 
 
 
Annex 6:  JRC  Study  –  Effect  of  non-refundable  WHT on FPI  and 
macro-economic indicators 

Summary 

The  present  note  describes  the  analytical  contribution  of  JRC.B1  and  JRC.B2  in 
support to the IA for the Commission initiative for a new  EU-wide system for the 
avoidance of double taxation and prevention of tax abuse in the field of withholding 
taxes.  The  note  is  structured  in  two  parts.  The  first  part  proposes  an  empirical 
(econometric)  model  to  test  the  sensitivity  of  foreign  portfolio  investment  to  non-
refundable withholding taxes. The second part quantifies the macroeconomic impact 
of  reducing  the  cost  of  withholding  tax  relief  procedures  making  use  of  the  CGE 
model CORTAX. 

Contacts: JRC 

1) 

Introduction 

Procedures for granting withholding tax relief on cross-border investment are considered 
an important barrier to the free movement of capital that hinders the good-functioning of 
the Single Market. The return to portfolio investment in equity or debt securities made by 
a  non-resident  investor  is  normally  subject  to  withholding  tax  in  the  country  of  the 
investment (source country). To avoid double taxation, whenever the source withholding 
tax  rate  is  higher  than  the  reduced  rate  applicable  according  to  the  relevant  double  tax 
treaty, the non-resident investor can claim ex-post the refund of the excess tax withheld 
by the source country. However, the current system for withholding tax refund in place in 
the EU proves cumbersome and costly, and prone to fraud. 

Lengthy and inefficient withholding tax relief procedures can give rise to three different 
sources  of  costs  that  ultimately  discourage  cross-border  investment.  First,  claiming  the 
refund entails direct financial costs arising from processing fees paid to the custodian or 
to an external service provider, paperwork, and diversity of source country requirements. 
Second, the delays – often in years – in refunding investors bring about implicit financial 
losses for the investors, compared to the ideal scenario with immediate refund. Finally, 
the fact that some investors, particularly smaller ones, may decide to forego the relief for 
a  number  of  reasons,  makes  the  current  system  costly  from  a  macroeconomic 
perspective,  as  it  holds  back  cross-border  investment.  By  hindering  full  integration  of 
securities  markets,  this  hinders  their  functioning  as  the  main  channel  of  cross-border 
private risk sharing for firms and households. 

Against  this  background,  the  European  Commission  has  adopted  several  actions  to 
address  tax  barriers  to  cross-border  investment.  In  2009,  a  recommendation  to  the 
Member States was adopted on the simplification of withholding tax relief procedures. It 
was followed by the publication, in 2017, of a Code of Conduct, which put forward new 
guidelines  on  withholding  tax  to  help  Member  States  reduce  costs  and  simplify 
procedures for cross-border investors in the EU. In the context of the renewed efforts to 
foster  capital  markets  integration  under  the  Capital  Markets  Union  (CMU)  initiative, 
alongside  the  promotion  of  fair  taxation  and  the  fight  against  tax  fraud  in  the  post-
pandemic recovery, the Commission is tackling withholding tax relief procedures as one 
of the remaining obstacles to cross-border investment in the EU. The Action Plan for fair 
and  simple  taxation  supporting  the  recovery  strategy  proposes  to  introduce  a  common, 
standardised  EU-wide  system  for  withholding  tax  relief  at  source  coupled  with  a  new 

102 

 
 
 
exchange  of  information  and  cooperation  mechanism  between  administrations.  The 
initiative is also one of the actions proposed in the Capital Markets Union for people and 
businesses new action plan. 

This  note  illustrates  the  analytical  contribution  of  the  JRC  in  support  to  the  IA  for  the 
Commission  initiative  for  a  new  EU  system  for  the  avoidance  of  double  taxation  and 
prevention of tax abuse in the field of withholding taxes. It is structured in two parts. The 
first part puts forward an empirical (econometric) model to test the sensitivity of foreign 
portfolio  investment  (FPI)  to  non-refundable  withholding  taxes.  The  second  part 
quantifies  the  macroeconomic  impact  of  reducing  the  cost  of  withholding  tax  relief 
procedures making use of the CGE model CORTAX. 

2) 

Measuring the effects of non-refundable withholding taxes on FPI 

1. 

Empirical strategy 

In order to  evaluate the  potential impact  of the policy reform  on FPI, the sensitivity of 
FPI  to  non-refundable  withholding  taxes  is  estimated  empirically.  The  available  panel 
data  covers  83  countries,  including  all  Member  States,  between  2005  and  2019. 
Following  an  established  practice  in  the  research  literature,  a  gravity-style  model  is 
adopted with fixed effects to infer withholding tax elasticities. In particular, the following 
baseline specification is estimated: 

𝐹𝑃𝐼𝑖𝑚,𝑡 = exp(𝛼0 + 𝛽1𝑁𝑜𝑛𝑅𝑒𝑓𝑢𝑛𝑑𝑎𝑏𝑙𝑒𝑊𝐻𝑇𝑚𝑖,𝑡 + 𝛽2𝐷𝑇𝑇𝑖𝑚,𝑡 + 𝜇𝑖𝑡 + 𝜃𝑚𝑡 + 𝛾𝑖𝑚)

+ 𝜀𝑖𝑚,𝑡 

where  𝐹𝑃𝐼𝑖𝑚,𝑡  is  the  stock  of  FPI  from  home  (investor)  country  i  in  Member  State 
(source)  m  in  year  t;  𝑁𝑜𝑛𝑅𝑒𝑓𝑢𝑛𝑑𝑎𝑏𝑙𝑒𝑊𝐻𝑇𝑚𝑖,𝑡  is  a  time-variant  vector  of  non-
refundable  withholding  taxes  in  Member  State  m  towards  an  investor  from  country  i; 
𝐷𝑇𝑇𝑖𝑚,𝑡 is  a dummy indicator taking the value of unity if there is  a tax treaty between 
investor country i and Member State m in  year t; and 𝜇𝑖𝑡, 𝜃𝑚𝑡 and 𝛾𝑖𝑚 are respectively 
vectors  of  home-year,  source-year  and  time-invariant  country-pair  fixed  effects.  A  unit 
increase in a covariate will lead to a 100*(𝑒𝛽−1) percentage increase in the FPI stock. 

The baseline model is estimated using the Poisson Pseudo Maximum Likelihood (PPML) 
estimator (108). The PPML estimator is chosen as it allows to account for zero FPI stocks 
and heteroscedasticity in FPI data (109). 

The  rich  structure  of  fixed  effects  allows  to  infer  the  effects  of  non-refundable 
withholding  taxes  on  FPI  from  within  country-pair  variation  over  time.  Specifically 
home-year and source-year fixed effects control for any country-year specific covariates 
that may affect cross-border investment, such as GDP, GDP per capita, (financial) market 
attractiveness,  or  access  to  financial  markets.  Time-invariant  country-pair  fixed  effects 
account  for  any  covariates  that  are  specific  (and  constant)  for  a  given  pair  of  countries 
over  time,  including  geographical  distance,  common  language  and  past  colonial 
relationship.  Therefore,  it  is  only  needed  to  control  for  covariates  that  change  within  a 
given  country-pair  over  time,  for  example,  the  signature  of  a  tax  treaty  and  our  main 
variable of interest, the non-refundable withholding taxes. 

103 

 
2. 

Data 

The  main  source  of  data  on  Foreign  Portfolio  Investment  (FPI)  is  the  “Coordinated 
Portfolio  Investment  Survey”  (CPIS),  conducted  by  the  IMF.  Portfolio  investment 
statistics  report  the  international  investment  position  of  participating  countries,  that  is 
their  holdings  of  portfolio  investment  assets  in  the  form  of  equity  and  investment  fund 
shares, long-term debt securities (i.e., debt securities with an original maturity over one 
year), and short-term debt securities (i.e., debt securities with an original maturity of one 
year  or  less).  The  statistics  are  reported  on  an  annual  basis  and  are  broken  down  by 
counterpart economies (those whose residents have issued the securities). 

Separate reporting of debt and equity holding allows to analyse the behaviour of the two 
series  separately.  Likewise,  the  breakdown  by  holding  sector  (financial  corporations, 
non-financial corporations, households) potentially allows one to detect differences in the 
cross-border investment behaviour of these agents. 

Data  on  withholding  taxes  and  tax  treaties  comes  primarily  from  country-specific 
withholding tax tables prepared by the IBFD and shared with JRC by DG TAXUD. The 
data  has  been  extensively  cleaned  in  order  to  identify  the  applicable  withholding  tax 
rates. In particular, considerable efforts have been made to identify the withholding tax 
rate applicable to negotiable (i.e. tradeable) debt securities owned by the sector of non-
financial  corporations,  households  and  non-profit  institutions  serving  households 
(NPISHs). 

3. 

Main results 

The main results on the effects of non-refundable withholding taxes on the total stock of 
equity and debt holdings are presented in Table 1. 

Table 1 
Effects of non-refundable withholding taxes 

(A) 

(B) 

Equity holdings (total stock)  Debt holdings (total stock) 

NonRefundableWHT 

DTT 

-1.6983*** 
(0.4938) 
0.0192 
(0.1176) 

-0.9624*** 
(0.3637) 
-0.0004 
(0.1434) 

No. of obs 
Pseudo R2 
Home-year FE 
Source-year FE 
Country-pair FE 
Note: Dependent variable: FPI stock of equity holdings (Panel A) and debt holdings 
(Panel B). ***, ** and * indicate significance at the 1%, 5% and 10% level 
respectively. Standard errors clustered by country-pair. 

19,739 
0.9937 
YES 
YES 
YES 

21,240 
0.9859 
YES 
YES 
YES 

104 

 
 
  
 
 
 
 
 
  
  
  
 
The  estimation  results  indicate  a  highly  significant  elasticity  of  the  FPI  stock  of  equity 
and  debt  holdings  to  non-refundable  withholding  taxes.  Concretely,  the  estimated 
elasticities imply that a 10pp reduction in non-refundable withholding taxes increases the 
FPI  stock  of  equity  holdings  by  between  5.2%  and  9.3%  (point  estimate  8.2%).  The 
corresponding  effect  on  FPI  stock  of  debt  holdings  is  slightly  lower  and  less  precise, 
estimated between 2.2% and 8.1% (point estimate 6.2%). No additional effect from two 
countries having a tax treaty on FPI can be found. 

The  analysis  is  continued  at  the  sectoral  level,  focusing  on  the  sector  of  Non-financial 
corporations,  Households  and  NPISHs  (NHN)  and  the  sub-sectors  of  Non-financial 
corporations  (NFCs)  and  Households  (HHs).  Tables  2  and  3  present  the  results  for  the 
FPI stock of equity and debt holdings. 

Table 2 
Sectoral effects of non-refundable withholding taxes: Equity Holdings 

(A) 
NHN (NFC + HH + NPISH) 

(B) 
NFC 

(C) 
HH 

NonRefundableWHT 

DTT 

-1.9218* 
(1.1621) 
0.5628* 
(0.3401) 

-1.3112 
(2.2525) 
0.1736 
(0.3724) 

3.2288 
(1.9934) 
0.2435 
(0.3569) 

10,302 
0.9943 
YES 
YES 
YES 

No. of obs 
Pseudo R2 
Home-year FE 
Source-year FE 
Country-pair FE 
Note: Dependent variable: FPI stock of equity holdings held by Non-financial 
corporations, Households and Non-profit institutions serving households (Column 
A), held by Non-financial corporations (Column B), and held by Households 
(Column C). ***, ** and * indicate significance at the 1%, 5% and 10% level 
respectively. Standard errors clustered by country-pair. 

6,613 
0.9975 
YES 
YES 
YES 

6,595 
0.9814 
YES 
YES 
YES 

In  the  same  vein  as  before,  the  results  suggest  that  non-refundable  withholding  taxes 
decrease the FPI stock of equity holdings held by the NHN sector. The effect is similar to 
the  baseline  estimate  with  a  point  estimate  of  8.5%  increase  in  FPI  stock  for  a  10pp 
decrease  in  non-refundable  withholding  taxes.  However,  the  effect  is  only  marginally 
significant  at  the  10%  level.  Looking  at  the  NFC  and  HH  sub-sectors,  no  statistically 
significant effect of non-refundable withholding taxes on the FPI stock of equity holdings 
is  found.  However,  the  much  smaller  sample  size  needs  to  be  taken  into  account  here, 
which may in fact preclude sufficient within country-pair variation over time to infer the 
impact of non-refundable withholding taxes on FPI stock. 

Moving to  the sectoral  effects  of non-refundable  withholding taxes on the FPI stock of 
debt  holdings,  no  statistically  significant  effect  for  the  NHN  and  HH  sectors  can  be 
detected.  In  contrast,  the  results  point  toward  a  highly  significant  effect  of  non-
refundable withholding taxes on the FPI stock of debt holdings held by NFCs. The effect 

105 

 
 
  
 
 
 
 
 
 
  
  
  
  
 
appears  larger  than  in  the  baseline  estimates  and  varies  between  5.5%  and  9.8%  (point 
estimate 9.2%) increase in FPI for a 10pp decrease in non-refundable withholding taxes. 

Table 3 
Sectoral effects of non-refundable withholding taxes: Debt Holdings 

(A) 
NHN (NFC + HH + NPISH) 

(B) 
NFC 

(C) 
HH 

NonRefundableWHT 

DTT 

-0.0496 
(0.6461) 
-0.5672 
(0.6156) 

-2.4683*** 
(0.8476) 
0.0048 
(0.8481) 

0.6712 
(1.1875) 
-1.0303** 
(0.5092) 

10,329 
0.9707 
YES 
YES 
YES 

No. of obs 
Pseudo R2 
Home-year FE 
Source-year FE 
Country-pair FE 
Note: Dependent variable: FPI stock of debt holdings held by Non-financial 
corporations, Households and Non-profit institutions serving households (Column 
A), held by Non-financial corporations (Column B), and held by Households 
(Column C). ***, ** and * indicate significance at the 1%, 5% and 10% level 
respectively. Standard errors clustered by country-pair. 

6,568 
0.9600 
YES 
YES 
YES 

6,473 
0.9841 
YES 
YES 
YES 

4. 

Robustness tests 

The results are corroborated by several robustness test. First, a bias correction procedure 
for PPML models with two- and three-way fixed effects is applied (110). Again, the results 
confirm  the  baseline  estimates.  Specifically,  the  effect  of  non-refundable  withholding 
taxes on the FPI stock of equity holdings (point estimate 8.3%) and debt holdings (point 
estimate 6.5%) is marginally larger than before. However, the latter is not significant at 
the 5% level. At the sector level, the effect of non-refundable withholding taxes on the 
FPI  stock  of  equity  holdings  held  by  NHN  sector  is  no  longer  statistically  significant, 
whereas the effect remains significant at the 5% in case of debt holdings held by NFCs. 

Next, the baseline model is estimated on interval data, keeping only every third or every 
fourth year from our panel in order to rule out time-period-specific effects (111). The main 
results  on  the  total  FPI  stock  of  equity  and  debt  holdings  remain  unchanged,  while  the 
results at the sectoral level appear more erratic. 

Finally, the baseline model is re-estimated using the EK Tobit estimator instead of PPML 
(112) Once again, the main results for the total FPI stock of equity and debt holdings are 
confirmed. The sectoral effects of non-refundable withholding taxes on the FPI stock of 
equity  holdings  remain  statistically  insignificant.  In  contrast,  statistically  significant 
sectoral  effects  of non-refundable withholding taxes on the FPI stock of  debt  securities 
held  by  NHN,  NFC  and  HH  sectors  are  not  found.  However,  it  needs  to  be  taken  into 

106 

 
 
 
  
 
 
 
 
 
 
  
  
  
  
 
account that the model could not be estimated with the full set of fixed effects. Instead, 
the  model  includes  a  reduced  set  of  home  and  source-year  fixed  effects  and  additional 
covariates  capturing  the  time-invariant  country-pair  characteristics.  Nonetheless,  these 
robustness tests should not be interpreted as inferring a causal relationship. 

3)  THE  MACROECONOMIC  IMPACT  OF  REDUCING  THE  COST  OF  WITHHOLDING  TAX 

RELIEF PROCEDURES 

1. 

Background 

The  JRC  has  also  simulated  the  macroeconomic  impact  of  reducing  the  cost  of 
withholding  tax  relief  procedures  based  on  the  computable  general  equilibrium  model 
CORTAX. The CORTAX model has been used extensively for past IAs, most recently in 
the context of the DEBRA initiative. The CORTAX model has been designed to simulate 
the  economic  impact  of  national  and  international  tax  policy  reforms,  as  well  as  the 
international harmonisation of national tax policies.  

CORTAX allows simulations of the effects of tax changes within a framework that takes 
into  account  the  complex  and  multi-faceted  interactions  between  firms  (including 
MNEs), households and governments. In the model, each country is assumed to have the 
same structure in terms of consumption, savings, production, and public finances (though 
the  data  and  parameters  are  country-specific).  Countries  are  linked  to  each  other  via 
international  trade  in  goods  markets,  investment  by  MNEs,  international  capital  flows 
and intermediate inputs within multinationals. 

Domestic  firms  produce  and  pay  taxes  only  in  their  country  of  residence,  whereas 
multinationals  optimise  profits  globally  and  engage  in  profit  shifting  activities  across 
borders. The model solves to  the long-run steady state equilibrium (the transition  paths 
between  states  are  not  modelled).  The  effects  of  reforms  can  then  be  expressed  as 
changes in GDP, household consumption, business investment and fiscal revenue. 

2. 

Modelling the cost of withholding tax relief procedures 

While withholding taxes and administrative costs from reclaiming overpayments are not 
explicitly modelled in CORTAX, it is reflected by adjusting the tax-deductibility of the 
administrative  cost  related  to  investments  abroad,  thereby  ultimately  reducing  the 
effective costs of foreign investments. Concretely, the model includes a cost of financial 
distress, which may be different across multinational firms in each of the country where 
their subsidiaries are present. This cost may be deductible from each of the CIT base paid 
by every subsidiary. For example, the relevant parameter, which is denoted by 𝛽𝑐, will be 
zero or one if either no or full deductibility is allowed, respectively. In principle, it can 
also take larger values than one. While in the baseline of the model the deductibility of 
this  cost  is  set  to  zero,  the  reform  is  simulated  by  allowing  a  positive  value  of  the 
deductibility  parameter,  thereby  effectively  decreasing  the  costs  related  to  investments 
abroad. 

Following established methods in the empirical trade literature, so-called tax-equivalents 
are computed. In this case, the equivalent deductibility that could rationalize the change 
in FPI, taking the semi-elasticity of foreign investments with respect to the deductibility 
within CORTAX (𝜂𝐶𝑜𝑟𝑇𝑎𝑥) as given, is computed as follows: 

107 

 
𝛽𝑐 =  

% ∆ 𝐹𝑃𝐼
𝜂𝐶𝑜𝑟𝑇𝑎𝑥

(1)  

The  numerator  of  Eq.  (1),  the  percentage  change  in  FPI,  requires  two  ingredients:  the 
actual  level  of  FPI  and  the  hypothetical  level  of  FPI  in  the  absence  of  any  costs  from 
withholding tax relief procedures. While the former can be directly observed in the data 
(e.g., how much do investors from Italy invest in the United States in a given year under 
the status quo), the latter must be inferred from estimated regressions by using predicted 
values of FPI levels with no costs from overpayment. 

The  semi-elasticity  of  -0.81  is  directly  obtained  from  the  empirical  analysis  above  in 
order  to  compute  hypothetical  levels  of  foreign  portfolio  investments  in  the  absence  of 
any WHT complexities, 𝐹𝑃𝐼̂ 𝑖𝑚,𝑡. For example, if a country pair im in year t has a level of 
FPI equal to EUR 4,255 million with a WHT overpayment gap of ten percentage points, 
it would have had an investment level of 4,255/(1-0.81*0.1) = EUR 4,630 million in the 
hypothetical case with no costs from reclaiming overpayments, ceteris paribus. Or, to put 
it differently, the change from the overpayment-free state to the actual investment level 
would be equivalent to 4,255/4,630-1 = -8.1% , equivalent to -0.81*10%. 

The  denominator  of  Eq.  (1),  the  tax  semi-elasticity  within  CORTAX,  𝜂𝐶𝑜𝑟𝑇𝑎𝑥,  can  be 
easily obtained from “within” the model by increasing the deductibility by one unit and 
observe  the  resulting  change  in  foreign  investments.  The  average  semi-elasticity  of 
investments is found to be 2.79. 

As  a  final  step,  the  corresponding  values  for  the  deductibility-equivalent  are  easily 
derived by applying Eq. (1) from  above:  by how much would the deductibility need to 
increase in CORTAX in order to replicate a change in foreign investments of the same 
magnitude that the first part of the analysis has suggested, taking as given the elasticity of 
foreign  investments  with  respect  to  the  deductibility.  In  the  baseline  scenario,  only 
observations  from  the  most  recent  year  in  the  sample  is  kept,  2019,  and  the  countries, 
which are present in CORTAX. When computing the median value across all remaining 
observations a value of approximately 0.82 is obtained to be used as the deductibility, 𝛽𝑐. 
The  baseline  results  are  accompanied  by  a  range  of  robustness  checks  in  which 
alternative parameter choices are used by alternating either the year(s) considered or by 
using the (investment-weighted) averages instead. 

3. 

Macroeconomic results 

The  model  results  indicate  that  the  impact  from  removing  WHT  overpayments,  on 
average  across  the  EU27  countries,  would  lead  to  an  increase  in  all  main  economic 
aggregates  (see  accompanying  results  table).  In  the  baseline  scenario,  EU27  GDP  is 
projected to increase by 0.047%, capital and wages would rise by 0.137% and 0.048%, 
respectively, and employment would increase marginally, too, as compared to the current 
status quo.  

In the baseline results, it is assumed that foregone governmental revenues are accounted 
for by adjusting government expenditures downward. The projected impacts are slightly 
larger in magnitude – especially with respect to GDP – when the government budget is 
balanced  by  reducing  government  transfers  to  the  old  generation  instead  of  reducing 
consumptive  government  expenditures.  The  robustness  checks,  in  which  different 
parameter  calibrations  for  the  newly  granted  deductibility  of  costs  related  to  foreign 

108 

 
investments  are  employed,  point  to  marginally  larger  impacts.  Overall,  the  results  are 
relatively small in magnitude, yet noticeable (113). 

Given that FPI is not explicitly modelled in CORTAX, in this exercise it is assumed that 
FPI  and  FDI  (foreign  direct  investment)  are  of  comparable  size  in  each  source  country 
and feature the same responsiveness  to  changes in  the deductibility.  This  allows  to  use 
FDI  instead  of  FPI  in  order  to  model  the  effect.  In  practice,  however,  FPI  levels  are 
typically  smaller  than  FDI,  but  reflect  large  cross-country  heterogeneity.  Beyond  this 
background,  no  assumption  is  made  concerning  the  average  for  the  EU27  as  a  whole. 
Nonetheless,  to  the  extent  that  countries  receive  less  FPI  than  FDI,  the  national  effects 
are likely to  be smaller than simulated here. Conversely, the  effects  would be larger in 
those cases where FPI is greater than FDI. 

109 

 
 
 
Annex 7: Withholding tax systems and reporting obligations in the 
Member States 

Overview  of  current  systems  and  reporting  requirements  in  the  various  Member  States 
based on the consultations and surveys undertaken in the fact-finding phase. Sources of 
information  are  mainly  from  bilateral  meetings  and  correspondence  with  the  respective 
Member  States,  combined  with  information  from  official  webpages  of  the  tax 
administrations,  as  well  as  other  websites  providing  relevant  information.  It  should  be 
noted that Member States can operate several systems in parallel, depending on the type 
of investors, or on the type of risk.  

MEMBER 
STATE 

Austria 

CURRENT SYSTEM 

Main  procedure  (s):  Refund  system,  complemented  with  relief  at 
source (for a minor part of the payments).  

For the refunds a pre-filing electronic system has to be used before the 
actual application is submitted in paper. For reporting purposes the last 
domestic financial intermediary in the holding chain is considered the 
withholding tax agent. Limitations to the reporting material sent to the 
withholding agent/tax administration because of confidentiality issues. 
The refunds have to be filed within five years following the year when 
the dividend payment was made. 

Belgium 

Main procedure(s): Relief at source complemented by refunds.  

Includes  a  self-attestation  approach.  Tax  liabilities  lie  with  the 
beneficial  owner  and  the  withholding  agent  (the  issuer),  not  the 
intermediaries. Has also  a quick relief system in place. Large refunds 
require  a  document  signed  by 
intermediary 
(custodian) and mention in detail every transaction carried out during 
the year preceding the date of payment of dividends as well as during 
the month following this date of payment of dividends.  

last  financial 

the 

Bulgaria 

Main  procedure(s):  Relief  at  source,  complemented  by  a  refund 
procedure. 

As  reflected  in  the  2020  survey,  the  withholding  tax  rates  used  to 
provide relief under the tax treaties are the same as the national tax rate 
(except  for  the  tax  treaty  with  Malta)  in  this  country,  which  impacts 
the need for reclaim procedures and reporting obligations.  

Uses  a  simplified  process  for  refunds  below  a  certain  threshold. 
Refunds  can  be  requested  from  the  tax  administration  either  by  the 
taxpayer or by the intermediary (needs explicit authorization). 

Croatia 

Main  procedure(s):  Relief  at  source,  complemented  by  a  refund 
procedure. 

The  Croatian  paying  agent  must  calculate,  withhold  and  pay  the 
withholding  tax,  or  reduce  the  payment  of  the  agreed  fee  by  the 

110 

 
amount of withholding tax.  

Cyprus 

No  reclaim  procedure  in  place  as  Cyprus  does  not  levy  a  WHT  on 
dividends and interests. 

Czech Republic  Main  procedure(s):  Relief  at  source,  complemented  by  a  refund 

procedure. 

A payer system or automatic deduction at source system is in place, it 
means  that  it  is  up  to  the  payer  of  the  tax  (i.e.  an  individual  or  legal 
person who is obliged to calculate, collect and pay the tax to the state 
budget  through  the  tax  administrator)  to  be  sure  that  the  documents 
submitted  by  the  taxpayer  (i.e.  an  individual  or  legal  person  whose 
income,  assets  or  activities  are  subject  to  tax)  are  true.  All  reporting 
information is gathered by the securities issuer (WHT agent). 

Denmark 

Main procedure(s): Refund process.  

The  closest  custodian  is  responsible  for  gathering  the  financial 
information  of  the  whole  chain,  including  the  foreign  intermediaries. 
Signs  financial  reporting  agreements  with  the  financial  institutions. 
Needs  detailed  information  from  each  part  of  the  financial  chain,  so 
not a streamlined standard documentation.  

Non-resident  shareholder  must  be  registered  with  the  Danish  tax 
authorities  and  registration  can  only  be  done  by  the  investor’s 
custodian  bank,  it  provides  the  investor  with  a  withholding  tax 
identification number identifying their custody account and the correct 
WHT  rate.  Non-resident  shareholder’s  custodian  bank  can  be  held 
liable for withholding at lower rates than the shareholder is eligible for. 
Has online claim form and uses XML solution for applications for bulk 
filing of refunds, for multiple beneficial owners. 

Estonia 

Finland 

No  reclaim  procedure  in  place  as  there  is  no  withholding  tax  on 
dividends  (if  the  paying  company  has  been  subjected  to  the  normal 
CIT rate.  

Main  procedure(s):  Relief  at  source  (inspired  by  TRACE)  as  a  rule 
complemented with refunds.  

Each  Authorized  Intermediary  provides  reporting  using  the  XML 
schema.  Keeps  a  register  of  AI’s  and  there  are  also  liabilities  for  tax 
when you are an AI. Investor self-declaration is used. 

France 

Main  procedure(s):  Relief  at  source  in  combination  with  refund 
procedures.  

Last  domestic  financial  intermediary  or  a  foreign  entity  within  the 
EEA  who  has  entered  in  a  contractual  agreement  with  the  tax 
authorities  to  act  as  withholding  agent.  Breakdowns  are  sent  at  event 
level and typically include event details. 

111 

 
Germany 

Main procedure(s): Refund system.  

Foreign  taxpayers  receive  relief  from  German  withholding  tax  either 
through  a  refund  of  tax  amounts  that  have  already  been  paid  or  by 
being issued a certificate of exemption before the remuneration is paid. 
The last  German intermediary in  a chain  of German intermediaries is 
considered  as  withholding  agent.  Has  the  responsibility  of  tax 
withholding on both capital income and capital gains.  

The process is mainly paper based today, but there will be new rules in 
2025. However, already in 2023, there will be a fully electronic online 
tax  reclaim  process.  In  the  future  the  withholding  tax  agent  will 
electronically provide the German Federal Central Tax Authority with 
a  Beneficial  Owner  breakdown  (collected  through  the  chain  of 
intermediaries) as well as comprehensive transaction reporting per BO. 

As  reflected  in  the  2020  survey,  the  withholding  tax  rates  used  to 
provide relief under the tax treaties are the same as the national tax rate 
in  this  country,  which  impacts  the  need  for  reclaim  procedures  and 
reporting obligations. 

Main  procedure(s):  Relief  at  source  in  combination  with  refund 
procedures. . 

Main  procedure(s):  Relief  at  source  in  combination  with  refund 
system. 

The  system  relies  on  qualified  intermediaries.  They  have  a  contract 
with  the  tax  administration.  Liability  is  similar  as  in  Finland  for 
authorized intermediaries. Thresholds for risk assessment in the refund 
process. As Ireland grants a domestic exemption to all qualifying non-
resident persons and residents of countries with which Ireland has a tax 
treaty.  The  system  is  mainly  paper  based  and  could  benefit  from  a 
move from paper based to digital solutions of reporting like xml. 

Greece 

Hungary 

Ireland 

Italy 

Main procedure(s): Relief at source and refund procedures.  

Last  domestic  financial  intermediary  or  a  foreign  entity  who  has 
entered through an Italian tax representative in a contractual agreement 
with the tax authorities to act as withholding agent. For securities not 
deposited in the  Italian domestic CSD, the issuer remains responsible 
for dividend withholding tax. 

Latvia 

No reclaim procedure as Latvia’s domestic income tax legislation does 
not provide for withholding taxes on outbound payments.  

Only dividends paid to residents of tax havens will be subject to 20% 
withholding tax. 

Lithuania 

Main procedure (s): Refund and relief system coexist.  

112 

 
Short timespan for processing refunds. 

Withholding tax rates are in this country, as per the 2019 survey, at the 
same rate or lower than the national tax rate, which impacts the need 
for reporting obligations.  

Luxemburg 

Main procedure(s): Mainly a refund system. 

The  digitalization  process  is  ongoing.  Issuer  is  also  withholding  tax 
agent. The claims for the refund on dividends have to be submitted by 
producing  a  bank  statement  (dividend  credit  advice)  issued  by  the 
shareholder’s  custodian  bank  and  documenting  the  payment  of  the 
dividend  to  the  final  beneficial  owner  and  a  confirmation  to  the  tax 
authorities  of  the  state  of  residence  of  the  beneficial  owner.  The  tax 
office  in  charge  is  verifying  the  request  and  after  approval,  the 
beneficial owner will be refunded by the tax collector’s office.  

Malta 

No reclaim procedure as Malta’s domestic income tax legislation does 
not provide for withholding taxes on outbound payments. 

Netherlands 

Main procedure (s): Refund system  

The refund process is fully digitalized, and there is a plan to by 2024 
have a relief at source system in place.  

The company that issues the dividend withholds the dividend tax and 
pays this to the Dutch Tax and Customs Administration. The company 
that  pays  the  dividend  must  file  the  return  for  dividend  tax.  For  this, 
they  have  to  use  the  Dividend  tax  return  form.  They  must  file  their 
return  within  one  month  of  the  dividend  being  issued.  On  the  return, 
they  enter  the  amount  of  tax  that  the  company  deducted  from  the 
dividends issued.  

Poland  

Main procedure(s): Relief at source and refund procedures.  

The  existing  refund  system  is  currently  suspended,  due  to  Covid 
reasons and administrative burden, instead relying more on the relief at 
source  processing.  The  last  financial  intermediary  in  the  chain  is 
normally  acting  as  a  withholding  tax  agent  and  reports  on  taxes, 
collection of tax and tax liability. 

Portugal 

Main procedure(s): Relief at source and refund procedures.  

Portugal  uses  a  system  of  refunds  and  relief  at  source.  Foreign 
financial intermediaries may be subject to tax-related obligations only 
if  it  acts  as  direct  custodian/registrar  entity,  in  which  case  it  must 
appoint  a  Portuguese  tax  representative.  Last  domestic  financial 
intermediary in the holding chain acts as withholding agent. 

Romania 

Main procedure(s): Relief at source and refund procedures.  

As  reflected  in  the  2020  survey,  the  withholding  tax  rates  used  to 

113 

 
provide relief under the tax treaties are the same as the national tax rate 
(except for the tax treaty with Ireland) in this country, which impacts 
the need for reclaim procedures and reporting obligations. 

Slovakia 

Main procedure(s): Relief at source and refund procedures.  

As  reflected  in  the  2020  survey,  the  withholding  tax  rates  used  to 
provide relief under the tax treaties are the same as the national tax rate 
(except for the tax treaty with Malta and with Poland) in this country, 
which  impacts  the  need  for  reclaim  procedures  and  reporting 
obligations. 

Slovenia 

Main procedure(s): Relief at source and refund procedures.  

Mainly uses relief at source, but there is also a refund system in place. 
Financial reporting is done through the withholding tax agent, and the 
system resembles the outlined option 2. Monthly reporting is done on 
breakdown level and the corresponding withholding tax payments are 
done  at  the  same  time.  The  withholding  tax  agent  also  handles  the 
refund process under normal circumstances. 

Spain 

Main procedure(s): Refund procedures.  

Use a refund system and there is also in place a  Quick refund system 
since 10 years ago which is not working properly. Securities issuer (in 
the  role  of  a  withholding  tax  agent)  reports  on  aggregate  basis  on 
monthly  basis.  Payment-specific  info  is  reported  in  yearly  basis  from 
participant of the central securities depository. 

Sweden 

Main procedure(s): Relief at source and refund procedures.  

Sweden  rely  mainly  on  relief  at  source  complemented  with  a  refund 
system. Reporting and tax payment is to be done from the FI closest to 
the owner. The reporting is to be done either by xml-transfer, uploaded 
data via webpage or by  paper. Info on amount taxes paid per kind of 
stock  and  tax  percentages  sent  to  the  tax  administration.  Reporting 
needs  to  be  done  within  4  months  and  no  later  than  the  day  of  the 
payment  to  the  tax  administration.  The  CSD  shall,  within  same 
timeframe provide info on total amounts of dividend paid where there 
is no right to tax for withholding, the size of the dividend and withheld 
tax for each issuing company. 

114 

 
 
 
ANNEX 8: Comparison domestic/conventional WHT rate over dividends and interest in 2020 

Comparison domestic/conventional WHT rate over dividends in 2020 

(source: JRC) 

Comparison domestic/conventional WHT rate over interests in 2020 

115 

- 

Table 1: Effective withholding tax rates on portfolio dividends (2020)Destination:AUTBELBGRCYPCZEDEUDNKESPESTFINFRAGRCHRVHUNIRLITALTULUXLVAMLTNLDPOLPRTROUSVKSVNSWEInternal rate28%30%5%0%15%26%15%19%0%30%13%5%12%15%25%26%15%15%0%0%15%19%28%5%7%28%30%Origin:Conventional rateAUT15%5%0%10%15%15%15%0%10%13%5%12%10%0%15%15%15%0%0%15%15%15%5%7%15%10%BEL15%5%0%15%15%15%15%0%15%13%5%12%10%0%15%15%15%0%0%15%10%15%5%7%15%15%BGR5%10%0%10%15%15%15%0%10%13%5%5%10%0%10%10%15%0%0%15%10%15%5%7%10%10%CYP10%15%5%5%15%15%5%0%15%13%5%12%15%0%15%5%5%0%0%15%5%10%5%7%5%15%CZE10%15%5%0%15%15%15%0%15%10%5%5%15%0%15%15%10%0%0%10%5%15%5%7%15%10%DEU15%15%5%0%15%15%15%0%15%13%5%12%15%0%15%15%15%0%0%15%15%15%5%7%15%15%DNK15%15%5%0%15%15%19%0%15%13%5%10%15%0%15%15%15%0%0%15%15%10%5%7%15%15%ESP15%15%5%0%15%15%27%0%15%13%5%12%15%0%15%15%15%0%0%15%15%15%5%7%15%15%EST15%15%5%0%15%15%15%15%15%13%5%12%15%0%15%15%10%0%0%15%15%10%5%7%15%15%FIN10%15%5%0%15%15%15%15%0%13%5%12%15%0%15%15%15%0%0%15%15%28%5%7%15%15%FRA15%15%5%0%10%15%27%15%0%30%5%12%15%0%15%15%15%0%0%15%15%15%5%7%15%15%GRC15%15%5%0%15%25%15%10%0%13%13%10%10%0%15%15%8%0%0%15%19%15%5%7%10%0%HRV15%15%5%0%5%15%10%15%0%15%13%5%10%0%15%15%15%0%0%15%15%10%5%7%5%15%HUN10%10%5%0%15%15%15%15%0%15%13%5%10%0%10%15%10%0%0%15%10%15%5%7%15%15%IRL10%15%5%0%15%15%15%15%0%0%13%5%10%15%15%15%15%0%0%15%15%15%3%7%15%15%ITA15%15%5%0%15%15%15%15%0%15%13%5%12%10%0%15%15%0%0%15%10%15%5%7%15%15%LTU15%15%5%0%15%15%15%15%0%15%13%5%12%15%0%15%15%0%0%15%15%10%5%7%15%15%LUX15%15%5%0%10%15%15%15%0%15%13%5%12%10%0%15%15%0%0%15%15%15%5%7%15%15%LVA10%15%5%0%15%15%15%10%0%15%13%5%10%10%0%15%15%10%0%15%15%10%5%7%15%15%MLT15%15%0%0%5%15%15%5%0%15%13%5%5%15%0%15%15%15%0%15%10%15%5%5%15%15%NLD15%15%5%0%10%15%15%15%0%15%13%5%12%15%0%15%15%15%0%0%15%10%5%7%15%15%POL15%10%5%0%5%15%15%15%0%15%13%5%12%10%0%10%15%15%0%0%15%15%5%5%15%15%PRT15%15%5%0%15%15%10%15%0%30%13%5%10%15%0%15%10%15%0%0%10%15%5%7%15%10%ROU5%15%5%0%10%15%15%15%0%5%10%5%5%15%0%5%10%15%0%0%15%15%15%7%5%10%SVK10%15%5%0%15%15%15%15%0%15%10%5%10%15%0%15%10%15%0%0%10%5%15%5%15%10%SVN15%15%5%0%15%15%15%15%0%15%13%5%5%15%0%15%15%15%0%0%15%15%15%5%7%15%SWE10%15%5%0%10%15%15%15%0%15%13%0%12%15%0%15%15%15%0%0%15%15%10%5%7%15%Notes:Denmark:The domestic withholding tax rate is 27%. However, this rate is reduced to 15% if there is a double tax treaty in place (with the double tax treaty possibly reducing the withholding tax rate even further).France:13% is for individuals, 25% is for legal persons 
 
 
 
(source: JRC) 

Comparison of intra-EU sample/worldwide sample regarding the percentage of DTT with internal WHT rate over dividends higher than conventional rate 
out of the total number of DTT in 2020 

116 

Table 2: Effective withholding tax rates on interest payments (2020)Destination:AUTBELBGRCYPCZEDEUDNKESPESTFINFRAGRCHRVHUNIRLITALTULUXLVAMLTNLDPOLPRTROUSVKSVNSWEInternal rate0%30%10%0%15%26%0%0%0%0%0%15%12%15%20%26%15%0%20%0%0%20%28%16%19%0%0%Origin:Conventional rateAUT15%5%0%0%0%0%0%0%0%0%8%5%0%0%10%10%0%10%0%0%5%10%3%0%0%0%BEL0%10%0%10%15%0%0%0%0%0%10%10%15%15%15%10%0%10%0%0%5%15%10%10%0%0%BGR0%10%0%10%5%0%0%0%0%0%10%5%10%5%0%10%0%5%0%0%10%10%5%10%0%0%CYP0%10%7%0%0%0%0%0%0%0%10%12%10%0%10%0%0%10%0%0%5%10%10%10%0%0%CZE0%10%10%0%0%0%0%0%0%0%10%0%0%0%0%10%0%10%0%0%5%10%7%0%0%0%DEU0%15%5%0%0%0%0%0%0%0%10%0%0%0%10%10%0%10%0%0%5%15%3%0%0%0%DNK0%10%0%0%0%0%0%0%0%0%8%5%0%0%10%10%0%10%0%0%5%10%10%0%0%0%ESP0%10%0%0%0%0%0%0%0%0%8%0%0%0%12%10%0%10%0%0%0%15%10%0%0%0%EST0%10%5%0%10%10%0%0%0%0%10%10%10%10%10%10%0%10%0%0%10%10%10%10%0%0%FIN0%10%0%0%0%0%0%0%0%0%10%0%0%0%15%10%0%10%0%0%5%28%5%0%0%0%FRA0%15%0%0%0%0%0%0%0%0%10%0%0%0%10%10%0%10%0%0%0%10%10%0%0%0%GRC0%10%10%0%10%10%0%0%0%0%0%10%10%5%10%10%0%10%0%0%10%15%10%10%0%0%HRV0%10%5%0%0%0%0%0%0%0%0%10%0%0%10%10%0%10%0%0%10%10%10%10%0%0%HUN0%15%10%0%0%0%0%0%0%0%0%10%0%0%0%10%0%10%0%0%10%10%15%0%0%0%IRL0%15%5%0%0%0%0%0%0%0%0%5%0%0%10%10%0%10%0%0%10%15%3%0%0%0%ITA0%15%0%0%0%10%0%0%0%0%0%10%10%0%10%10%0%10%0%0%10%15%5%0%0%0%LTU0%10%10%0%10%10%0%0%0%0%0%10%10%10%10%10%0%0%0%0%10%10%10%10%0%0%LUX0%15%10%0%0%0%0%0%0%0%0%8%10%0%0%10%10%10%0%0%5%15%10%0%0%0%LVA0%10%5%0%10%10%0%0%0%0%0%10%10%10%10%10%0%0%0%0%10%10%10%10%0%0%MLT0%10%0%0%0%0%0%0%0%0%0%8%0%10%0%10%10%0%10%0%5%10%5%0%0%0%NLD0%10%0%0%0%0%0%0%0%0%0%10%0%0%0%10%10%0%10%0%5%10%0%0%0%0%POL0%5%10%0%5%5%0%0%0%0%0%10%10%10%10%10%10%0%10%0%0%10%10%5%0%0%PRT0%15%10%0%10%15%0%0%0%0%0%15%10%10%15%15%10%0%10%0%0%10%10%10%0%0%ROU0%10%5%0%7%3%0%0%0%0%0%10%10%15%3%5%10%0%10%0%0%10%10%10%0%0%SVK0%10%10%0%0%0%0%0%0%0%0%10%10%0%0%0%10%0%10%0%0%5%10%10%0%0%SVN0%10%5%0%5%5%0%0%0%0%0%10%5%5%5%10%10%0%10%0%0%10%10%5%10%0%SWE0%10%0%0%0%0%0%0%0%0%0%10%0%0%0%15%10%0%10%0%0%0%10%10%0%0% 
 
 
 
 
 
(source: JRC) 

117 

 
 
Annex 9: Explanation of the Financial industry value chain 

Financial  Markets  refer  generally  to  any  market  where  the  buying  and  selling  of 
securities take place and cover a wide range of financial instruments, which can broadly 
speaking  be  classified  as  cash  instruments,  derivative  instruments  or  foreign  exchange 
instruments,  and  which  may  also  be  categorised  according  to  the  type  of  asset  (e.g. 
equity,  bond,  or  commodity).  Financial  markets  present  different  infrastructures  and 
involve  a  large  variety  of  participants,  even  more  when  transactions  are  cross-border. 
They are also highly complex as a result of their inherent dynamics, the sheer number of 
transactions that take place and their velocity. 

After  a  trade  takes  place  a  variety  of  «post-trade”  services  have  to  be  performed.  The 
main ones include clearing (114), settlement (115), custody, asset servicing (116) and post-trade 
reporting (117).  Post-trade  processes  also  include  support  to  investment  funds,  securities 
financing (i.e. securities  lending  and repo transactions), collateral  management services 
and support to issuers of securities. Post-trade services are an integral part of a complex 
financial  industry  value  chain  (see  Figure  below),  as  proceeds  of  the  issuance  of  a 
financial instrument will only be credited to an issuer’s account upon related post trade 
services  having  come  into  play.  As  a  result,  a  multitude  of  financial  intermediaries 
between an issuer and an investor are involved. 

Figure: Financial industry value chain 
Source: European Post Trade Forum, 15 May 2017 (118)  

The  WHT  refund  process  involves  in  particular  the  “custody  chain”,  by  which 
investors use intermediaries (such as central securities depositories and custodians) to 
hold  securities.  An  important  challenge  of  long  and  complex  custody  chains  is 
information  management.  More  specifically, 
the  collection, 
maintenance  and  transmission  of  information  by  the  intermediaries  in  the  custody 
chain, so that information from the issuer is passed on down to the end investor, and 
that  information  from  the  end  investor  is  passed  up  via  the  custody  chain  to  the 
appropriate  recipient,  whether  that  be  the  issuer,  a  withholding  agent,  or  the  tax 
authorities in the country of the investment (119). 

the  challenge 

is 

118 

 
 
 
 
 
Annex  10:  Biannual  summary  report  on  the  Code  of  Conduct 
follow-up 

EUROPEAN COMMISSION 

DIRECTORATE-GENERAL 

TAXATION AND CUSTOMS UNION 

Direct taxation, Tax Coordination, Economic Analysis and Evaluation 

Direct Tax Policy & Cooperation 

taxud.d.2(2020) 

BIANNUAL SUMMARY REPORT ON THE 
CODE OF CONDUCT FOLLOW-UP 

Tackling tax barriers to investment by improving 
withholding tax procedures 

CODE OF CONDUCT 
ON WITHHOLDING TAX   
REPORT 2018-2019 

Introduction 

When  passive  incomes  (dividends,  interest  or  royalties)  are  paid  cross-border,  taxing 
rights are shared between the source and residence state. When an excessive withholding 
tax  (hereinafter,  WHT)  has  been  produced  in  the  source  country,  to  avoid  double 
taxation, non-resident taxpayer is entitled to request for a WHT refund for the difference 
between the actual amount withheld and the withholding tax pursuant to conventions for 
the avoidance of double taxation. 

These  WHT  refund  procedures  must  be  operated  by  the  tax  administrations  of  the 
Member States in a swift and traceable way to make sure they are efficient for taxpayers 
and, at  the same time, there is  not  an abusive utilization of it  (an abusive utilization of 

119 

 
 
 
 
 
 
 
 
 
 
 
WHT  refund  schemes  has  happened  in  the  last  years  as  recently  demonstrated  by  the 
“Cum/Ex scandal” (120)).  

Nevertheless,  the  refund  systems  for  cross-borders  payments  have  been  proofed  to  be 
demanding, resource-intensive and costly for both investors and tax administrations. This 
lack  of  effectiveness  related  to  WHT  refund  procedures  forces  taxpayers  to  face  late 
returns or even losing the right to apply for a refund. 

From  the  point  of  view  of  the  capital  market  union,  the  barriers  to  free  movement  of 
capital must be removed in order to achieve a well-functioning capital market and not to 
hinder  cross-border  investment,  and  inefficient  WHT  refund  procedures  are  one  of  the 
main barriers to this objective. In particular, burdensome procedures for WHT reliefs and 
refunds  have  long  been  identified  as  a  barrier  to  achieve  a  single  European  securities 
market  because  they  disrupt  financial  processes  and  increase  the  cost  of  cross-border 
trading,  resulting  misallocation  of  financial  resources  which  undermines  investment 
within the EU. They have also been identified as particularly burdensome for individual 
and small investors.  

Any  solution  sought  to  this  problem  must  keep  a  balance  between  barriers  removal  to 
encourage cross-border investments, the imperative of preventing, detecting and stopping 
non-compliance  and  fulfilling  the  Member  States’  aim  of  revenue  needs  in  the  source 
countries to fund public expenditures. 

For  at  least  the  past  decade,  the  European  Commission  has  been  active  in  promoting 
simpler withholding tax procedures within the EU. In this sense, it is worthy to highlight 
the  Recommendation  on  WHT  relief  procedures  published  in  2009  (121).  However,  this 
stand-alone  instrument  has  long  been  identified  as  not  efficient  enough  to  address  the 
underlying problem. 

Against  this  background  and  with  this  balance  requirement  in  mind  of  need  of 
simplification  for  compliant  taxpayers  and  fraud  detection,  the  European  Commission 
responded  with  the  publication  in  December  2017  of  a  Code  of  Conduct  on  WHT 
(developed by the Commission alongside a Fiscalis Project Group of 13 Member States 
which met 5 times).  

The Code of Conduct on WHT is a non-binding instrument, which sets recommendations 
and best practices for the Member States that address simplification and improvement of 
the efficiency of WHT refund procedures and relief at source for cross-border investors 
(122). 

This  code  also  comes  as  a  response  to  the  September  2015  Commission's  initiative  to 
build  a  Capital  Markets  Union  (CMU),  which  proposed  to  draft  a  Code  of  Conduct  on 
WHT as one of its main deliverables and the work of the EU Commission Expert Group 
on barriers to free movement of capital (composed mostly of non-tax experts).  

Therefore, the Code of Conduct, borne in December 2017 and published on the European 
Commission website, should be considered as a compilation of pragmatic approaches to 
improve the efficiency of current withholding tax procedures, in particular for refunds of 
WHT and relief at source (Member States can add or adapt elements to meet national and 
international standards). 

120 

 
The  main  measures  to  improve  the  WHT  refund  procedures  stated  in  the  Code  of 
Conduct are:  

 

 

 

 

 

user-friendly digital WHT procedures,  

efficient internal IT systems,  

effective reliefs and provision of refunds in a short period (max 6 months delay),  

user-friendly  forms  and  documentation  requirements  (lower  burden,  simpler 
forms, less paper, more automation) and  

setting up a single point of contact. 

After the publication of the Code of Conduct, several follow-up actions were undertaken 
allowing the Commission to keep track on the grade of commitment of each MS with the 
measures advised by the Code of Conduct and to ensure it promotes a positive change, 
trying  to  assess  up  to  what  extent  the  Member  States´  tax  administrations  are  aligning 
with the approaches contained in the Code. 

In  2018,  a  public  hearing  was  arranged  on  30  January  and  two  workshops  with  tax 
experts of Member States were held 21 June and 5 November. During 2019, a workshop 
took place on the 21 June and another on 18 November.  

In  an  effort  to  summarized  all  the  post-Code  of  Conduct  works  undertaken  by  DG 
TAXUD, DG FISMA and the Member States involved in the surveys launched and in the 
meetings held alongside the last two years, this final summary report is drafted trying to 
clarify  the  current  state  of  play  of  the  withholding  tax  procedures  and  the  grade  of 
implementation  of  the  practical  approaches/recommendations  included  in  the  Code  of 
Conduct. 

This biannual summary report on the implementation of the Code of Conduct up to the 
end  of  2019  aims  to  serve  as  evidence  basis  for  possible  further  actions  at  EU  level  in 
2020  and  onwards  for  making  withholding  tax  procedures  simpler,  while  ensuring 
compliance.  

Therefore, the Commission services intend, with this biannual summary report, to gather 
the conclusions on the Code of Conduct’s implementation for both 2018 and 2019. The 
source  of  information  are  Member  States’  replies  to  the  surveys  launched  by  the 
Commission  to  monitor  the  follow  up  of  the  Code  in  2018  and  2019  as  well  as 
the  same  period. 
discussions  during 

follow  up  workshops  held  during 

the 

121 

 
Scope 

In  general,  the  code  is  envisaged  to  apply  to  WHT  procedures  on  cross-border  passive 
income (mainly dividends, interests and royalties) that is sourced in an EU Member State 
and  that  is  paid  to  non-residents  on  that  Member  State.  However,  there  are  differences 
depending on the countries on what incomes paid to non-resident are withheld.  

In this graphic it is shown the number of countries who withhold the different types 
of passive income: 

Chart 1 Type of refunds claims 

It is worth mentioning that, in case of dividends, WHT is deducted either by the issuer of 
the securities or by a financial intermediary that is involved in the payment of the income 
and then paid to the tax authority. 

In  addition,  is  important  to  note  that,  since  the  main  categories  of  passive  incomes 
withheld are dividends and interest, all the follow-up works on the Code of Conduct are 
referred to these two categories.  

Therefore, focusing on dividends and interests, the following breakdown among Member 
States shall be stressed (123):  

Table 6 WHT on non-residents  

122 

 
 
 
 
123 

Austria nnBelgiumnnBulgariannCroatiannCyprus onCzechia nnDenmarknoEstoniannFinlandnoFrancenoGermanyn1nGreecennHungarynnIrelandnnItalynnLatviannLithuaniannLuxembourgnoMalta nnNetherlandsnoPolandnnPortugalnnRomaniannSlovakiannSloveniannSpainnnSweden noUnited Kingdom onn Yes; o No; empty cells: no information. 1 Germany: Interest paid to non-resident investors are only taxable if the capital assets are secured by domestic real state or registered shipEU MemberWHT on non-residentsDividendsInterests 
Indicators 

The  Code  of  Conduct  is  a  soft  policy  instrument  whose  implementation  relies  on 
voluntary commitments and measures by Member States. To know whether the Code of 
Conduct is effective, there is a need to monitor the performance of the Code against its 
objectives. Checking effectiveness of public policies, either in taxation or in other fields, 
can be considered a general principle of good governance. Focussing on EU tax policy, 
reference  can  be  made,  among  others,  to  the  European  Taxpayers'  Code  (124):  “It  is 
necessary  that  in  each  Member  State,  a  system  is  in  place  in  order  to  properly  assess 
whether the tax administrations deliver their objectives in an efficient and effective way.”  

When it comes to monitoring, the Code of Conduct includes a follow-up section which 
encourages Member States to collect "information about progress achieved and to share 
this information and best practices with the Commission and with each other".  

This  document  describes  the  state  of  play  of  the  Code  of  Conduct’s  implementation 
based on monitoring information provided on a voluntary basis by Member States to the 
Commission  services  in 2018 and 2019 through  general  surveys and through a specific 
quantitative indicators survey launched in 2018.  

In 2018 and 2019,  the Commission  services collected information  using  online surveys 
(125). In particular, the 2019 general survey links the different objectives of the Code to a 
set  of  questions,  seeking  to  identify  any  change  which  has  taken  place  in  the  Member 
States national WHT tax systems compared with the 2018 baseline. Some new questions 
were also included in 2019 general survey with the aim of gaining additional information 
on some aspects of the Member States´ WHT systems.  Furthermore, in 2018 a specific 
survey  was  launched  regarding  some  quantitative  indicators  related  to  the  number  of 
refund  claim  submitted,  how  many  of  them  are  applied  by  electronic  means,  period  of 
time to get the payment of the refund and the origin of the applicant. 

Sources of information or, in other words, the respondents, are officials working for the 
Member  States'  tax  administrations  and/or  in  some  cases  Member  States'  ministries  of 
finance. 

The  indicators  used  to  measure  the  alignment  of  the  Member  States  with  the  Code  of 
Conduct’s practical approaches through 2018 and 2019 WHT surveys (126) are presented 
in details in annex.  

The main findings of the follow up work so far are:   

Summary of the findings  

 

 

 
 

Information  gathered  indicates  that  within  the  EU  there  are  few  barriers 
preventing non-resident or their representatives to apply for relief at source or 
for refund.  
Relief  at  source  is  a  widespread  practice  available  in  almost  all  EU  Member 
States (nonetheless, with limited scope).  
Digitalisation of refund procedures is limited.  
Overall,  only  in  a  few  countries  it  is  possible  submitting  a  claim  in  respect  of 
multiple beneficial owners at once. 

124 

 
 
 

 

 

 

 
 

 

 
 
 
 

Cross-checking and data-matching with data sources already available is rather 
common.  
Only few administrations receive automatic alerts of possible risks and can create 
statistical reports simply and rapidly on claims processing.  
A  large  majority  of  Member  States  provide  refunds  on  average  within  six 
months.  
In  most  Member  States,  forms  are  considered  user-friendly  and  guidance  up  to 
date.  
Forms are available also in English in most countries.  
Generally  speaking,  there  is  no  specific,  simplified  documentation  in  case  of 
minor risks.  
Tax  residence  certificates  are  accepted  almost  everywhere  in  the  format 
provided by the residence country.  
Self-certification of tax residence is generally not accepted.  
Regarding single points of contact, several EU countries have set up one. 
No excessive administrative burden is perceived by MS with some exceptions. 
The MS, in general, ask for more standardisation in the area of WHT and find 
the Code of Conduct not sufficient to this purpose. 

In order to illustrate these main findings in a graphical way, see the chart below. 

Overall, the indicators where the green bars are longer correspond to the approaches of 
the Code of Conduct which are met in a significant level. These areas of higher level of 
compliance are: 

 

 
 
 

The easiness for entitlement to submit WHT refund requests by the 
beneficial owner or a representative on his behalf. 
The availability of relief at source for non-residents. 
The acceptance of tax residence certificates of the country of issuance. 
User-friendly documents and information available. 

On  the  contrary,  the  indicators  where  the  red  bars  are  longer  correspond  to  those 
recommendations of the Code of Conduct where insufficient progress has been made so 
far,  and,  thus,  where  further  action  might  be  delivered.  These  areas  where  there  are 
greater room of improvement are: 

 
 
 

 

Lack of acceptance of self-certification as a tax residence proof. 
Lack of digitalisation of the system to submit a refund request. 
Lack of ad hoc procedures (with less tax administrative burden) for minor 
risk taxpayers. 
Lack of regulation about the possibility of submitting joint claims for 
requesting WHT refunds. 

125 

 
 
 
Conclusions and Potential Ways Forward 

In 2020, the Commission will continue to promote the Code of Conduct and to make tax 
administrations (via follow up workshops, via TADEUS meetings etc.) more aware of its 
importance.  

In particular, it is important to raise awareness of the need to simplify WHT procedures 
for compliant non-resident investors with the relevant tax administrations’ services / units 
in charge of withholding tax procedures for non-resident investors.  

The  Commission  will  organise  new  follow  up  workshops  for  tax  administrations,  to 
which all tax administrations are warmly welcome to join and contribute.  

The Commission will launch a new survey to review the Code’s implementation in 2020.  

126 

 
 
 
 
Annex  11:  Common  Reporting  Elements  and  reporting  obligation 
functioning 

To  accommodate  the  processes  of  reclaiming  in  excess  withheld  taxes,  a  common 
standard of reporting for the actors in the financial markets should be introduced. It will 
benefit tax administrations, taxpayers and also financial intermediaries. The filing of the 
requests for refunds should not only be allowed to be done by taxpayers themselves but 
also by their closest financial intermediary on an automated basis.  

Information to be shared 

Data  to  be  provided  to  the  tax  administrations  regarding  each  taxpayer  for  which  a 
reclaim is submitted: (other than its details): 

1) 

eTRC  or,  in  case  of  non-EU  countries  not  adopting  eTRCs,  their  tax  residency 
certificates, which should include at least the same data as contained in the eTRC. 

2) 

Statement by the taxpayer confirming that: 

1. 

2. 

he/she  is  the  beneficial  owner  under  the  relevant  tax  treaty  under  the 
national legislation of the source country (if the refund request is based on 
the respective national rules); and 

he/she  has  not  engaged  in  transactions  with  the  held  security  that  would 
lead  to  the  taxpayer  no  longer  having  the  full  economic  and  legal 
ownership. 

3) 

Data regarding the payment: 

1. 

2. 

3. 

4. 

5. 

6. 

7. 

8. 

9. 

10. 

11. 

Type of dividend (cash, stock or choice) [or interest payment] 

Payment date 

Issuer + European Unique Identifier (EUID) 

Security (ISIN) 

Gross amount of dividend 

Withholding tax rate 

Rate Reason (treaty or national legislation) 

Withholding tax amount 

Adjustment (in case already part of the refund was granted) 

The safekeeping account number or voucher account number 

Acquisition date of the security (for evasion or avoidance purposes) 

The  aim  of  any  reporting  obligation  imposed  is  that  the  source  country  receives  the 
information  about  the  final  investor/beneficiary’s  identification  and  the  data  needed  to 
recreate  the  financial  holding  chain.  These  data  could  be  reconciliated  with  the  data 
stated  on  the  refund  request  or  the  one  provided  by  the  WHT  agent.  An  information 
exchange  covering  more  granular  information  on  the  refunds  received  by  the  taxpayer 
could be of benefit as well to the residence country of the taxpayer. 

127 

 
Digital/automation 

The  use  of  common  XML  schemas  to  exchange  data  seems  -based  on  experience  with 
DAC2 and the Finnish experience- to be an acceptable way forward and allows for easier 
data processing. 

Reporting obligation functioning 

Under  option  2,  3  there  is  a  common  reporting  obligation  consisting  of  every  financial 
intermediary within the chain should report relevant information to the tax administration 
of the source country as depicted in the following figure: 

Such  system  is  being  used  by  the  Finnish  tax  administration  since  2021  as  part  of  the 
rules implemented to apply TRACE and Quick refund system and, according to Finnish 
provided data, has been proven as reliable and fit for purpose (127). 

128 

 
 
 
 
Annex 12: Technical specifications for setting up an EU-wide digital 
Tax Residence Certificate 

Key requirements for an eTRC 

The  following  characteristics  and  qualities  of  the  eTRC  were  identified  as  essential  to 
ensure  ease-of-use,  security,  recognition  and  verification  of  the  digital  tax  residence 
certificate: 

  The  eTRC  must  be  issued  by  the  tax  authority  of  the  tax  residence  country 

(authentic source of information) 

  The eTRC must be issued to the beneficiary either as a natural person or as a 

legal entity 

  Key elements of the eTRC must be standardised across the EU 
  At the end of a chain of financial intermediaries, the eTRC must be ultimately 
verified  by  actors  without  direct  contact  with  the  beneficiary:  either  the  tax 
authority  of  the  source  country  (normal  procedure)  or  an  appointed 
withholding  tax  agent  (quick  refund  procedure);  also  potentially  verified  by 
other actors in the chain. 

  The  eTRC  must  be  issued  for  one,  multiple  or  all  events,  depending  on 
agreements with Member States; since the concept of tax residence currently 
depends on national rules, this also means that in some cases, the beneficiary 
can  have  two  valid  certificates  issued  by  two  different  countries,  with 
overlapping validities. 

  The eTRC must enable to ensure authenticity of the beneficiary as well as of 

the issuer 

  The  trust  model  must  involve  national  eID,  and  offer  “high”  level  of 

assurance as defined in eIDAS 

  The eTRC  must offer the possibility to  create human-readable presentations 

of the TRC (typically PDF documents) 

  The eTRC must be compliant to GDPR / IDPR 
  The eTRC should be issued with a validity period (validity and expiry dates) 
  Revocation of the eTRC before the expiry date should be possible 
 

In  addition  to  the  above,  the  eTRC  should  be  machine-readable,  to  unlock 
opportunities to automate the verification activities. 

Overview of possible implementation options 

Considering  the  above  requirements,  we  have  identified  the  following  technological 
solutions options for its implementation: 

1.  Verifiable credentials 
2.  Electronic seals 
3.  Data publication 
4.  Data querying 

129 

 
 
 
Options A and B support a verification model in which the eTRC is held and presented 
for  verification,  by  the  beneficiary  itself  (also  known  as  the  “holder”  in  that  specific 
context). This means that the verifier does not need access to the authentic source of the 
eTRC (i.e. the issuing tax authority of the tax residence country). Options C and D rely 
on either actively publishing the data to all verification service providers or providing a 
centralised user interface that relies on querying the information sources for verification. 

All options can rely on either central or national portal(s) for the interaction between tax 
administrations and investors or intermediaries. However, given that all  Member States 
have  pre-existing  national  taxation  portals  (including  authentication  of  taxable  persons) 
in  place,  the  costs  of  setting  up  an  additional  centralised  system  would  likely  be  very 
high in comparison to utilising the existing national systems. 

Option A: Verifiable credentials 

Option A relies on a verification model based on machine-readable, cryptographically 
verifiable certificates.  

W3C  standards  for  Verifiable  Credentials  (VC)  and  Decentralised  Identifiers  (DID) 
enable a decentralized system in which the beneficiary keeps control of their identity and 
attestation attributes. This is enabled through storage of the credentials in a digital wallet 
application and selective ad-hoc disclosure of information in the context of presentations. 
It allows the users of digital wallets to manage all types of credentials (not just the eTRC) 
in their daily life using one single wallet application, built with a privacy-first focus and 
with  a  user  experience  “akin  to  that  of  the  Apple  wallet”  (but  with  enhanced 
functionality, including having government support of identities in these functions). 

The Verifiable Credentials ecosystem is summarized by the following diagram (source: 
https://www.w3.org/TR/vc-data-model/ ). 

The  adoption  of  W3C  standards  for  the  eTRC  technical  solution  also  provides 
standardisation,  interoperability  (between  issuer,  holder,  and  verifier’s  systems)  and 
automated verification both of identities and of credentials.  

This  option  would  ensure  that  the  eTRC  is  based  on  next-generation  technological 
systems where identity and personal data sharing are directly under the control of users, 
such as beneficiaries  (as opposed to  the dominant  online service platforms), and which 
are currently gaining significant traction. 

Option B: Electronic seals 

130 

 
 
Option  B  relies  on  electronic  seals  to  provide  trust  regarding  the  authenticity  of  the 
issuer,  as  well  as  the  integrity  of  the  certificate.  Qualified  electronic  seals  have  legal 
standing based on the current version of the electronic IDentification, Authentication and 
trust  Services  (eIDAS)  Regulation,  which  was  adopted  in  2014  and  covers  the 
interoperability  of  national  electronic  identification  schemes  (eIDs)  as  well  as  cross-
border  trust  services.  It  enables  citizens,  businesses  and  public  authorities  to  carry  out 
secure and seamless electronic interactions. 

Electronic  seals  do  not  require  the  holder  to  use  a  personal  digital  wallet,  as  electronic 
signatures  are  embedded  in  the  signed  document  itself.  Any  kind  of  document  can  be 
signed,  but  in  practice  Adobe  PDF  is  the  current  de  facto  standard  for  platform-
independent exchange of human-readable documents. Current versions of Adobe Acrobat 
Reader provide built-in support for validation of eIDAS-compliant signatures, and can be 
used to sign and seal documents as well. 

Option C: Data publication 

Based on existing trans-European communication patterns used by public authorities in 
the taxation domain, option C relies on the issuer pro-actively publishing certificates to 
all verification service providers, either directly or via a central database. This option can 
be applied to any information exchange (e.g. dividends), not just eTRCs. 

The  VAT  One  Stop  Shop  (ECOM-OSS)  is  an  example  of  a  system  based  on  point-to-
point publication. Taxable persons interact with a single tax administration via a national 
portal,  which directly publishes relevant  information  to  the national  portals  of involved 
Member States. 

The  Distributed  Registry  of  IOSS  VAT  IDs  (ECOM-IOSS-DR)  is  an  example  of  a 
system  based  on  a  central  database.  Taxable  persons  interact  with  a  single  tax 
administration  via  a  national  portal,  which  publishes  relevant  information  to  a  central 
database.  Local  nodes  in  each  Member  State  then  replicate  the  information  from  the 
central  database  and  provide  IOSS  VAT  ID  validation  services  to  national  customs 
authorities. 

Option D: Data querying 

Based on  existing trans-European  communication patterns used in  the taxation domain, 
option D relies on the issuer to provide web services for querying certificates, which can 
be consumed on demand by verification service providers. This option can be applied to 
any information exchange (e.g. dividends), not just eTRCs. 

The  VAT  Information  Exchange  System  (VIES)  is  an  example  of  such  a  system.  The 
web services  provided  are consumed not  only by  other Member States,  but  also  by the 
public via a centrally provided user interface (VIES-on-the-Web). 

In  case  a  paper-based  (i.e.  printed)  version  of  the  eTRC  should  be  supported  in 
combination with the cryptographic options A or B, a more light-weight approach based 
on  QR  codes  leading  directly  to  the  national  portals  would  eliminate  the  need  for  a 
centrally provided user interface. 

High-level Comparison of options 

131 

 
Options  A  and  B  rely  on  a  decentralised  model,  in  which  the  eTRC  is  held  by  the 
beneficiary,  and  the  issuing  tax  authority  is  not  directly  involved  in  verifying  its 
authenticity. Options C and D require the issuing tax authority to hold on to the original 
eTRC  after  issuance  and  provide  copies  to  any  verification  service  providers  either 
immediately after issuance (option C) or at the time of verification (option D). 

Technical complexity 

Option  B  has  the  lowest  technical  complexity.  Issuers  would  rely  on  existing 
accredited national qualified trust service providers (i.e. trust service providers that 
are  listed  as  qualified  in  the  EU  trusted  lists)  when  creating  electronic  seals,  and 
verification  service  providers  would  rely  on  the  same  EU  trusted  lists  when 
validating  electronic  seals.  The  related  business  logic  for  signature  and  validation 
can  be  performed  manually  via  standard  office  software  such  as  Adobe  Acrobat 
Reader,  or  rely  on  custom  implementation  for  full  automation.  Furthermore,  a 
separate list of legitimate issuers is required to identify specific authorities eligible 
for  issuing  eTRCs.  Finally,  a  central  revocation  list  may  be  required  to  identify 
eTRCs that were revoked after issuance. 

Option A relies on similar components, but is not supported by existing off-the-shelf 
software. Issuers and verifiers would have to implement related business logic based 
on  W3C  standards,  and  holders  would  rely  on  digital  wallets  to  store  eTRCs  and 
select certain attributes for presentation. For investors as natural persons, the mobile 
software  market  is  offering  a  growing  variety  of  personal  digital  wallet  software 
which  can  be  installed  on  a  smartphone,  is  already  integrated  with  national  eID 
systems  and  is  compatible  with  relevant  standards  (please  note  that,  although 
integration  of  the  personal  digital  wallet  with  an  eID  at  national  level  would  be 
required in each MS, mutual recognition of national eID systems is not required in 
the context of the WHT use case). At worst, the price of this mobile wallet software 
is  expected  to  be  in  line  with  typical  mobile  (Android  or  iOS)  application;  a 
harmonized digital identity wallet will be proposed for free to the EU citizen when 
the EU digital identity framework is adopted. It is expected that citizens can have an 
EUeIDWallet at the earliest by the end of 2024. Investors as legal persons shall use 
enterprise digital wallet software, typically as a subscription to a wallet-as-a-service 
in  the  cloud,  but  it  could  also  be  a  standalone  application  deployed  on  their  own 
infrastructure. DG DIGIT of the European Commission is carrying out a survey of 
the  software  and  services  market  for  such  enterprise  wallets.  This  market  is  only 
recently  emerging;  mywallet.cloud  and  walt.id’s  Wallet  Kit  are  examples  of  such 
offerings.  If  necessary,  they  can  be  integrated  with  the  enterprise’s  information 
systems through an API. 

For  option  A,  a  set  of  common  services  are  also  necessary:  A  so-called  universal 
resolver (for the discovery and resolution of decentralised identifiers or DID’s) and 
a verifiable data registry (as a trusted repository of DID-related information).  

Should the possibility to revoke E-TRC’s (after issuance but before expiration) be a 
requirement,  in  the  context  of  option  A  there  exists  a  wide  spectrum  of  possible 
approaches  offering  increasing  levels  of  data  privacy,  erasure  and  control,  and 
scalability, at the cost of increasing complexity. Approaches range from Certificate 
Revocation  Lists  (simple  but  offering  poor  privacy  protection),  through  to  more 
advanced cryptographic approaches (more elaborated but offering good privacy), to 

132 

 
the establishment of a Revocation Services Provider (ensuring very high privacy for 
all  actors  but  with  higher  technical  and  organisational  complexity).  WHT  policy 
makers, Member States and stakeholders need to agree on the importance (or not) of 
these requirements for the eTRC use case, and which approach(es) would be most 
desirable, so that the Commission can ensure that these requirements be included in 
the EBSI roadmap. For option B, given that it does not present particular advantages 
in  terms  of  data  data  privacy,  it  would  likely  not  be  desirable  a  priori  to  explore 
advanced approaches beyond a centralised revocation list accessible to verification 
service providers. 

Options  C  and  D  require  a  heavier  technological  architecture,  infrastructure, 
governance,  and implementation  typical  of centralised, distributed or hybrid trans-
European  systems.  Both  options  require  common  IT  specifications  to  define  a 
shared  format  for  data  exchanges.  Option  C  could  rely  either  on  point-to-point 
communication  where  issuers  directly  publish  eTRCs  to  all  repositories  accessible 
to verification service providers, or a central database that collects all issued eTRCs 
and  provides  data  replication  services  to  any  repository  accessible  to  verification 
service  providers.  In  either  case,  all  repositories  accessible  to  verification  service 
providers would have to store a copy of all eTRCs. Option D relies on either central 
or  national  portals  implementing  a  user  interface  for  querying  the  national 
repositories of all potential issuers. In this case, verification service providers would 
not need to store a copy of all eTRCs, but would instead request a copy of a specific 
eTRC only when validating it. 

Cost 

Detailed  cost  estimates  require  a  technical  study  based  on  a  finalised  set  of 
requirements, but usually cost correlates strongly with technical complexity. Based 
on experience with existing trans-European information systems, we can make some 
general assumptions as well as logical deductions to provide an idea of the potential 
costs incurred by each of the proposed solutions. 

The  tables  on  the  next  pages  provide  estimates  for  the  IT  implementation  and  the 
additional IT operation / maintenance efforts, in man-days and man-days per year of 
operation respectively, both for electronic seals (option B) and verifiable credentials 
(option A). Tables are provided for the issuance and verification capabilities.  

The  provided  estimates  are  based  on  a  similar  electronic  seals  project  under 
development at DG TAXUD, extrapolated to typical scenarios expected for options 
A  and  B  (the  corresponding  assumptions  are  detailed  in  the  table  in  Annex  12). 
Please note that the actual IT implementation costs for national administrations, as 
well as operation and maintenance, will depend on the specific IT context each tax 
administration  is  facing  (national  IT  market,  national  administration  systems  and 
online services already in operation, etc.) as well as on their ambition to implement 
one  or  the  other  option  (A  or  B  or  both)  either  simultaneously  or  phased,  and 
possible synergies with other projects. 

Effort estimates for issuers wanting to operate issuance capability for options A 
and B 

These  are  the  costs  for  a  stakeholder  acting  as  fully  automated  issuer,  i.e.  for 
national  tax  administrations  of  the  EU  Member  States  or  third  countries 
133 

 
participating  in  the  eTRC  scheme.  Estimations  pertain  to  the  implementation  and 
operation of 4 key local services: 

o  Extension  of  an  existing  online  service  using  national  capabilities  for 
authenticating and identifying investors (required for both options A and 
B); 

o  A service for the creation of verifiable credentials (option A) or electronic 

seals (option B); 

o  A  service  for  the  revocation  of  verifiable  credentials  (option  A)  or 

electronic seals (option B); 

o  A  service  for  the  registration  of  trusted  issuers’  decentralised  identifiers 
(DID)  (option  A)  or  the  management  and  registration  of  trusted  issuers’ 
public keys (option B); 

It is further assumed that: 

1)  the services  at tax administration level can be  lightweight and implemented on 

IT infrastructure already in place 

2)  the database containing the tax residency records can be accessed from the back-

end components with appropriate software developments 

3)  the implementation will be carried out by a team familiar with the technology. 

Option A 
(VC) 

Option B 
(e-seals)  

Key assumptions 

IT implementation 
(in man-days) 

Functional analysis 

Technical analysis 

170 

140 

20 

30 

20 

30 

Development, 
testing, integration 

90 

60 

Deployment, 
conformance 
testing 
IT operations and 
maintenance (in 
man-day per year) 

30 

35 

30 

30 

134 

Similar (limited) complexity for both 
options 
Similar technical complexity for both 
options; could differ if going into more 
detailed estimations 
For option B: estimation based on VAT 
Exemption Certificate project 
proposed by TAXUD + reliance almost 
entirely on 3rd party software 
components (DSS library). 
Extrapolated to option A, adding +50% 
provision for potential additional 
effort to leverage additional software 
components (issuance libraries etc.) 

Assuming 20-30% of IT 
implementation effort; per year 

 
 
 
  
+ for option A: 
Participation to 
EBSI operations for 
the eTRC use case 
+ for option B: 
Qualified Trust 
Service Provider 
fee (certificates) 

Unknown 

- 

- 

Unknown 

Assuming the EBSI is used, 
participation to EBSI operations costs 
related to eTRC use case is unknown 
at this stage. 

Effort  estimates  for  verifiers  wanting  to  operate  fully  automated  verification 
capability for options A and B 

These are the costs for a stakeholder acting as fully automated verifier, i.e. for national 
tax administrations of the EU Member States or third countries participating in the eTRC 
scheme, as well as financial intermediaries in direct contact with a significant amount of 
investors (i.e. an amount that justifies the cost of full automation). Estimations pertain to 
the implementation and operation of 4 key local services. 

o  Extension  of  an  existing  online  service  using  national  capabilities  for 
authenticating and identifying  investors (required for both options A and 
B); 

o  A  service  for  the  verification  of  verifiable  credentials  (option  A)  or 

validation of electronic seals (option B); 

o  A service for the verification of revocation; 

o  A  service  for  the  verification  of  registration  of  the  issuer  in  a  Trusted 
Issuers  Registry;  this  service  shall  be  publicly  accessible  by  verifiers 
(note: for option A, if the EBSI is used, it is assumed that this service will 
be provided ‘out-of-the-box’). 

It is further assumed that: 

1)  the services at tax administration level can be implemented on IT infrastructure 

already in place 

2)  the implementation will be carried out by a team familiar with the technology. 

Option A 
(VC) 

Option B 
(e-seals)  

Key assumptions 

IT implementation 
(in man-days) 
Functional analysis 

Technical analysis 

Development, test, 
integration 

Deployment, 

135 

20 

30 

60 

25 

135 

20 

30 

60 

25 

135 

Similar number of steps as issuance 
Similar technical complexity for both 
options A and B; could differ if going 
into more detailed estimations 
For option A: Reuse of verification 
libraries proposed by the EBSI team 
(option A). For Option B: Use of DSS 
library 

 
  
 
 
 
  
conformance 
testing 
IT operations and 
maintenance (in 
man-day per year) 
+ for option A, if 
EBSI is used: 
Participation to 
EBSI operations for 
the eTRC use case 

30 

30 

Assuming 20-30% of IT 
implementation; per year 

Unknown 

- 

Assuming the EBSI is used, 
participation to EBSI operations costs 
related to eTRC use case is unknown 
at this stage. 

Effort estimates for European Commission 

These  are  the  costs  for  the  European  Commission  acting  as  service  provider  for 
revocation  and  issuer  management.  If  EBSI  is  chosen  for  option  A,  it  is  assumed 
that these services are provided by EBSI. In any other case, as well as for option B, 
2 central services must be provided by DG TAXUD: 

o  A registry of trusted issuers’ public keys (assuming public keys need to be 

changed periodically); 

o  A list of revoked eTRCs. 

Option A 
(VC) 

Option B 
(e-seals) 

IT implementation 
(in K EUR): 
Specifications 
Implementation 
IT operations and 
maintenance (in K 
EUR / year) 

- 

- 
- 

- 

900 

200 
700 

180 

Assuming 20% of IT implementation; 
per year 

A  charge  out  rate  of  EUR  600  to  EUR  1  K  per  man-day  is  used  below  for  the  cost 
estimates.  

Commission services 

The  Commission  will  incur  costs  if  it  is  required  to  implement  and  operate  Option  B. 
Based  on  similar  projects  undertaken  by  the  Commission,  the  corresponding  IT 
implementation  costs  are  estimated  to  be  EUR  900  K,  with  annual  recurring  costs  of 
EUR 180 K (assuming these are 20% of IT implementation costs). 

Tax administrations  

Estimates for the IT implementation and the additional IT operation efforts (in man-days 
and  man-days  per  year  respectively)  both  for  the  issuance  and  for  the  verification 
capabilities,  and  both  for  e-sealed  certificate  (option  B)  and  for  verifiable  credential 
(option A). These estimates are based on a similar electronic seal project undertaken by 
the  Commission,  extrapolated  to  typical  scenarios  expected  for  options  A  and  B.  The 

136 

 
 
 
 
 
  
  
 
actual  costs  of  implementation,  operation  and  maintenance  of  the  required  IT  services 
will  depend  on  the  specific  IT  context  each  tax  administration  is  facing  (national  IT 
market, national administration systems and online services already in operation, etc.) as 
well as  on  their ambition to  implement  one or the other option (A or B or both) either 
simultaneously or phased, the possible synergies with other projects, etc. 

Depending on local  IT conditions,  for tax administrations  both issuing eTRC requested 
online  and  verifying  (foreign  investor’s)  eTRC  submitted  online,  either  as  verifiable 
credential  or  as  electronic  seal,  these  efforts  estimations  could  translate  into  IT 
implementation costs estimated at between EUR 180 K to EUR 300 K borne directly by 
each tax administration.  

Also,  tax  administrations  shall  subscribe  to  some  supporting  trust  services;  those 
subscription  costs  are  difficult  to  estimate,  as  access  conditions  to  such  services  will 
likely  differ  in  each  Member  State,  however  they  should  stay  small  compared  to  the 
overall  yearly  recurring  cost.  In  the  case  of  option  A,  tax  administrations  shall  also 
subscribe to some supporting services but these services shall be specified in the context 
of  the  actual  implementation.  It  is  not  possible  to  provide  a  cost  estimate  at  this  stage, 
however,  subscription  costs  should  stay  small  compared  to  the  overall  yearly  recurring 
cost. 

Financial Intermediaries 

The  verification  costs  of  an  eTRC  will  be  minimal  for  financial  intermediaries.  A 
financial  intermediary  may  want  to  automate  the  verification  process  by  providing 
investors  to  directly  submit  an  eTRC  online  under  options  A  and  B.  This  may  be  an 
optimal  cost/benefit  solution  for  large  intermediaries  like  custodian  banks  with  a  large 
number of transactions.  Such a solution would unlock possibilities for automation down 
their  internal  processes  -  which  may  be  the  case  for  large  financial  intermediaries  like 
custodian  banks  -  then  IT  implementation  costs  and  annual  recurring  costs  would  be 
similar to  the costs for tax authorities for the implementation  of online submission and 
verification  of  an  eTRC  as  described  in  previous  section.  Effort  estimates  for  verifiers 
would translate into IT implementation costs expected to be between EUR 80 K and 135 
K for a financial intermediary (for eTRC either as verifiable credentials or as electronic 
seals) assuming a daily rate of between EUR 600 and EUR 1 K.  

Annual recurring IT costs are estimated to be between 20%% of IT implementation costs 
and therefore to  be  between EUR 16 K and  EUR 27 K for  each financial intermediary 
(for  eTRC  either  as  verifiable  credentials  or  as  electronic  seals).  It  is  not  possible  to 
factor  in  subscription  costs  to  potentially  required  supporting  services  at  this  stage, 
however they are deemed to be a small fraction of the overall recurring costs.  

Costs  estimates  for  options  C  and  D  for  tax  administrations  and  financial 
intermediaries: 

Options  C  and  D  are  classical  approaches  to  trans-European  information  systems.  For 
regular  use  cases  (i.e.  non-exceptional  amount  and  type  of  information  exchanges) 
development costs usually fall into the range of € 1 to 2 million per node, although some 
Member  States’  local  IT  architecture  or  implementation  preferences  may  result  in 
increased development costs for their node. Yearly operational costs for DG TAXUD are 
estimated  to  be  20%  of  the  development  costs  of  a  single  node,  most  of  which  is 

137 

 
 
attributed  to  the  operational  support  and  network  infrastructure  provided  by  DG 
TAXUD.  The  estimated  aggregate  IT  implementation  costs  for  EU27  are  estimated  at 
between  EUR  27  million  and  EUR  54  million  for  data  publication  and  data  querying. 
Costs  for  Member  States  depend  heavily  on  the  specific  national  IT  infrastructure  and 
implementation choices.  

For financial intermediaries, the costs are estimated at 75% of the verification costs for 
Options A and B. Therefore, for Options C and D this would in the range of EUR 60 K to 
100 K per financial intermediary. 

Assessment and comparison: 

Option  B  is  the  financially  most  efficient  solution  for  the  investor,  as  it  requires 
neither  the  operation  of  an  IT  system  for  exchanging  eTRCs  between  Member 
States, nor a digital wallet for holders to store their eTRC. If Member States choose 
to fully automate the signature and validation processes, some national development 
cost  would  be  incurred  but  significantly  less  than  for  a  national  node  of  a  trans-
European  information  system  (see  above).  Regarding  operational  costs,  Member 
States could either make use of their own trust service provider for the creation of 
qualified electronic seals, or any of the commercial EU trust services providers for 
the creation of qualified electronic seals.  The pricing depends on the provider and 
the volume, but typically amounts to € 0.10 per qualified electronic seal. 

Option  A  requires  more  IT  components  and  services  than  option  B  (e.g.  digital 
wallet,  universal  resolver,  verifiable  data  registry); 
it  also  requires  more 
development  and  integration  between  and  around  IT  components.  However,  it 
similarly  avoids  the  high  operational  costs  of  trans-European  information  systems 
(options C and D). Because option A is highly innovative, we have no comparable 
existing IT systems to base cost estimates on; consequently, we need to investigate 
potential  costs  for  this  solution  based  on  an  initial  set  of  assumptions  regarding 
technical  design  and  availability  of  the  required  software  components  and  related 
services.  Going  forward,  a  pilot  implementation  will  be  required  to  estimate  the 
costs  related  to  the  procurement,  operation,  and  use  of  the  different  software 
components  as  well  as  to  the  organisational  complexity  to  establish  the  required 
trust model at the appropriate level of assurance. 

Assuming that revocation is required, this is inherently supported by options C and 
D, but would require additional components and services (and thus additional cost) 
for  options  A  and  B.  This  especially  increases  the  cost  for  option  B,  which  will 
require  a  custom  implementation  of  revocation  functionalities  in  the  form  of  a 
central  service.  It  also  increases  the  risk  for  option  A  if  it  relies  on  revocation 
functionalities being provided by the EBSI. It should also be noted that the custom 
implementation  of  revocation  functionalities  (generally  speaking,  the  need  for 
central  services)  makes  option  B  more  expensive  than  option  A,  though  still  less 
expensive than options C or D. 

Innovation risk 

Options  C  and  D  rely  on  classical  approaches  to  trans-European  data  exchanges, 
that have been applied in numerous existing IT systems in the taxation domain. The 

138 

 
 
risk is minimal as both the DG TAXUD as well as national tax administrations have 
ample experience in implementing these communication patterns. 

On  the  other  hand,  options  A  and  B  follow  innovative  approaches  and  rely  on 
components for which neither the specifications nor their implementation are under 
the control of DG TAXUD or national tax administrations. 

Option B is an innovative approach which so far has not been implemented in any 
existing trans-European taxation IT system. However, electronic seals are currently 
under  discussion  in  the  context  of  the  VAT  exemption  certificate,  and  the  eIDAS 
regulation (which has been in effect since 2014) as well as EU trusted lists are fully 
supported by standard software such as Adobe Acrobat Reader. 

Option A is an even more innovative approach that requires common services which 
are not yet publicly available. Specifically, the universal resolver and verifiable data 
registry  would  re-use  services  offered  by  the  European  Blockchain  Services 
Infrastructure  (EBSI),  which  is  currently  being  built  by  the  European  Blockchain 
Partnership  (EBP)  formed  by  Member  States,  Norway,  Liechtenstein,  and  the 
European Commission. This infrastructure is making good progress: At the time of 
writing  this  document,  the  pre-production  network  is  operational,  allowing  pilot 
projects;  support  of  the  VC/DID  model  by  the  EBSI  is  expected  to  transition  into 
production later in 2023.  

It  is  important  to  note  that  investigation  of  approaches  to  support  revocation  of 
verifiable  credentials  in  the  EBSI  context  (and  associated  trade-offs  in  terms  of 
privacy,  data  protection,  scalability,  and  complexity)  has  only  started  recently. 
Assuming that the possibility to revoke issued E-TRC’s is required, it is important to 
understand that, at the time of writing this document, a roadmap for the assessment, 
selection and implementation of revocation mechanism(s) in the EBSI context still 
needs  to  be  established,  presented to  and approved by the EBP. Consequently, we 
expect that support of credentials revocation in the EBSI context will lag availability 
of the EBSI production network for the issuance and the verification of the  eTRC; 
the eTRC implementation roadmap would be phased accordingly (possibly starting 
with a “simple” Certificate Revocation List in a first phase).  

Data privacy 

Option  A provides  the unique benefit of allowing the beneficiary full control over 
data  disclosure  (of  course  within  the  constraints  of  the  relevant  legislation).  In 
addition,  advanced  cryptographic  techniques  can  be  leveraged  to  reinforce  data 
privacy, if it were required in future regulatory contexts (e.g. proofs of predicates to 
avoid  revealing  data  unnecessarily  or  blinding  of  the  issuer’s  signature  to  avoid 
correlation  of  digital  signatures).  A  further  advantage  is  that  only  the  information 
that needs to be demonstrated to the tax authority of the investment country needs to 
be specified in the legal base, not the actual presentation of the eTRC.  

There  exist  a  wide  spectrum  of  possible  approaches  to  revocation  for  option  A, 
ranging  from  a  Certificate  Revocation  List  (offering  poor  privacy  protection), 
through  more  advanced  cryptographic  approaches  (offering  good  privacy),  to  the 
establishment of a Revocation Services Provider (unlocking very high privacy and 
scalability with minimal privacy compromises). This means that the Member States 
shall  agree  on  the  eTRC  data  privacy  requirements,  on  the  appropriate 
139 

 
approach(es) and on associated trade-offs in terms of traceability (or lack thereof), 
scalability  and  complexity.  As  stated  previously,  at  the  time  of  writing  this 
document, a roadmap for support of revocation  mechanism(s) in  the EBSI context 
still needs to be established and approved by the EBP (also embarking the specific 
eTRC  privacy  requirements);  the  Member  States  requirements  and  decisions  will 
impact the eTRC implementation roadmap. 

Option B does not provide the holder any control over which parts of the eTRC are 
presented  to  the  verifier.  This  is  due  to  the  electronic  seal  applying  to  the  entire 
eTRC,  i.e.  it  is  not  possible  to  successfully  validate  an  electronic  seal  without 
presenting  the  entire  eTRC.  The  lack  of  selective  data  disclosure  facilitates  the 
correlation of digital signatures, and the structure of the machine-readable content of 
the  eTRC  is  immutable.  Data  privacy  will  largely  be  a  trade-off  between  data 
minimisation and data completeness, to ensure that the eTRC can be used in a wide 
variety of use cases.  

Given that data privacy is not a strong value proposal of option B, it does probably 
not  make  much  sense  to  explore  advanced  approaches  to  revocation  beyond  a 
Certificate Revocation List accessible to verifiers. 

Options C and D offer the least privacy benefits to the beneficiaries, as they have no 
control  over  their  eTRC.  The  original  copy  has  to  be  stored  by  the  issuer,  and 
additional  copies  are  either  published  to  (i.e.  option  C)  or  made  available  for 
querying  by  (i.e.  option  D)  all  verification  service  providers.  Additionally, 
verification  by  third  parties  (e.g.  WHT  agents  or  other  financial  intermediaries)  is 
only  feasible  by  making  eTRCs  available  on  a  public  portal,  where  anyone  who 
knows  the  reference  number  of  the  eTRC  can  view  the  related  information  (e.g. 
VIES on the Web for VAT IDs). 

Data security 

Option  C  requires  every  repository  accessible  to  verification  service  providers  (as 
well  as  possibly  a  central  database)  to  hold  a  copy  of  all  eTRCs.  This  effectively 
maximises the potential attack surface, as a breach of any one of these local copies 
would result in unauthorised access to all eTRCs. 

Option  D  is  somewhat  more  secure,  as  only  the  issuers  are  required  to  maintain 
copies of only those eTRCs that were issued by them. However, verifiers would still 
obtain  (and  for  performance  reasons  possibly  at  least  temporarily  store)  copies  of 
any  eTRCs  verified  by  them.  Furthermore,  central  or  national  verification  portals 
could  potentially  expose  specific  eTRCs  to  third  parties,  if  access  to  verification 
services is not restricted to authorised users. 

Options A and B provide the least exposure to potential cyber attacks, as the storage 
of eTRCs is entrusted to the holder. Neither issuers nor verifiers would be required 
to store any  eTRCs, as the completeness, integrity and verification of the  eTRC is 
assured by cryptographic means. While option B relies on PDF documents that can 
be  kept  on  any  storage  device  and  transferred  by  traditional  means  such  as  email, 
option  A  provides  an  additional  layer  of  security  in  that  the  eTRC  is  stored  in  a 
digital wallet to which only the holder has access, and from which only an ad-hoc, 
specific presentation is generated for verification. 

140 

 
Network capacity 

Options  A  and  B  have  very  small  dependency  on  network  capacity  limitations 
between issuers and verifiers, as the eTRC is stored by the holder, rather than being 
transmitted via a secure trans-European network such as CCN2. 

Option C is optimised for high frequency of read access. Publication of data via a 
secure trans-European network such as CCN2 allows the recipient to rely on a local 
copy for read access, thus eliminating the need for repeated transmission of data via 
a network. 

Option  D  is  optimised  for  low  frequency  of  read  access.  If  every  recipient  only 
requires  sporadic  read  access  to  only  a  fraction  of  the  overall  data,  or  if  the  data 
changes  more  frequently  than  it  is  read,  then  querying  the  original  source  of 
information  (i.e.  the  national  node  of  the  issuing  tax  administration)  would  be  a 
more efficient use of network capacity than publication. 

Business impact 

Most  potential  options  have  a  low  business  impact,  except  for  option  A  which 
requires  holders  to  use  a  digital  wallet,  and  may  require  holders  to  personally 
present their eTRC. 

Issuance 

All  options  require  the  investor  to  apply  for  an  eTRC  by  providing  their  personal 
data  on  a  national  web  portal.  The  national  tax  administration  validates  the  data 
provided by the investor and generates an eTRC. 

Option  A  requires  the  issuer  to  electronically  sign  the  generated  eTRC  as  a 
verifiable  credential,  which  the  beneficiary  (holder)  stores  in  their  digital  wallet. 
Electronic signing must be automated via custom implementation. 

Option  B  requires  the  issuer  to  electronically  sign  the  generated  eTRC  as  an 
electronically  sealed  PDF,  which  the  beneficiary  can  download  and  store  on  any 
device or cloud storage service. Electronic signing can be performed manually using 
standard  software  such  as  Adobe  Acrobat  Reader,  or  automated  via  custom 
implementation. 

In both options A and B, the issuer shall manage the lifecycle of each eTRC issued 
by them, including identifying which eTRC should be revoked. The issuer will have 
to use the revocation mechanisms agreed upon by the Member States, appropriate to 
the  required  level  of  privacy  and  control  (and  supported  as  standards  in  the  EBSI 
context for option A). If a high level of privacy is to be enforced, this could include 
interacting with a Revocation Service Provider (cf. section about data privacy). 

Option C and D require a unique reference number to be generated for each eTRC, 
which  is  communicated  to  the  beneficiary  and  like  option  B  can  be  stored  on  any 
device  or  cloud  storage  service.  Depending  on  the  length  of  generated  reference 
number, it can also  be stored non-electronically,  e.g. by  writing it down  on paper. 
The data itself is stored by the issuer, and either published to or made available for 

141 

 
querying  by  any  verification  service  providers  via  a  trans-European  IT  system 
relying on CCN2 for secure data transfer between national tax administrations. 

Presentation 

Option  A  allows  the  holder  to  selectively  present  their  eTRC  (i.e.  presenting  only 
the amount of information required for verification, instead of presenting the entire 
certificate),  but  may  require  them  to  personally  present  their  eTRC.  The  W3C 
standard  supports  the  delegation  (to  a  third  party)  of  the  actual  presentation  of 
credentials  to  a  verifier,  however  if  compliance  with  GDPR  is  required, 
beneficiaries  as natural  persons  could  need to  present  their  credentials  themselves 
to  verifiers.  If  the  eTRC  is  implemented  as  a  verifiable  credential  issued  to  an 
investor  as  a  natural  person,  forwarding  of  such  credentials  through  a  chain  of 
intermediaries needs to be further assessed in terms of practicalities and transfer of 
liability for presentation (to the tax administration or to the WHT agent). 

Option B relies on an electronically sealed PDF, which can be freely transferred by 
the  beneficiary  to  third  parties  such  as  financial  intermediaries  and  WHT  agents, 
who  in  turn  can  present  it  on  behalf  of  the  beneficiary.  Unlike  option  A,  the 
electronically sealed PDF must be presented in  its  entirety to  allow verification of 
its completeness and integrity. 

Options C and D provide the beneficiary with a unique reference number, which can 
be  freely  transferred  to  third  parties  such  as  financial  intermediaries  and  WHT 
agents,  who  in  turn  can  present  it  on  behalf  of  the  beneficiary.  As  verification  is 
performed  based  on  a  copy  of  the  original  data,  acquired  separately  (i.e.  through 
publication or querying) from the issuer via a secure communication network such 
as CCN2, the beneficiary or his/her representatives do not need to present the actual 
eTRC. 

Verification 

Option  A  is  unique  in  that  it  provides  a  verifiable  presentation  containing  the 
cryptographic information required for verification of the attested credentials. This 
loose  coupling  between  the  credentials  and  their  actual  verifiable  presentation, 
combined  with  the  fact  that  these  two  elements  comply  to  an  internationally 
recognised  (W3C)  technical  standard,  unlocks  very  significant  capabilities  such  as 
automated  verification,  genericity  (multiple  uses),  ad-hoc  presentations,  and  most 
importantly selective disclosure of credential information (thereby reinforcing data 
privacy and protection). 

Option  B  allows  the  use  of  standard  software  such  as  Adobe  Acrobat  Reader  for 
validating  eIDAS-compliant  electronic  seals.  However,  an  additional  check  is 
required to confirm whether the seal was applied by an authority eligible to sign this 
specific type of certificate. This check can be performed manually by comparing the 
signatory of  the  eTRC  with  a list  of eligible authorities, or automated via national 
implementation or a central web service that allows verifiers to upload an eTRC and 
simultaneously check both validity and eligibility of the electronic seal. Verification 
by third parties (i.e. actors other than national tax administrations) could be enabled 
manually by publishing a list of eligible authorities for public use, or automated by 
providing  public  access  to  the  national  implementation  or  central  web  service.  In 

142 

 
either case a process needs to be put in place for (self-)management and publication 
of the list of eligible authorities.  

In both options A and B, the verifier will have to use the mechanism agreed upon by 
the  Member  States  to  check  if  the  presented  eTRC  has  not  been  revoked  by  the 
issuer. If the Member States agreed to enforce a very high level of holder privacy, 
this  could  imply  interacting  with  a  Revocation  Service  Provider  (cf.  section  about 
data  privacy).  Regardless  of  the  chosen  mechanism,  this  check  would  have  to  be 
automated, given the potentially large number of revoked E-TRC’s. 

In  options  C  and  D,  data  presented  by  the  beneficiary  does  not  contain  
cryptographical proof on its completeness and integrity; therefore the verifier needs 
to rely on the original data (or a trusted copy thereof). National tax administrations 
could either check their local copy (i.e. option C) or query the original source (i.e. 
option  D)  for  eTRCs  based  on  the  unique  reference  number  provided  by  the 
beneficiary or his representatives. To avoid third parties storing a complete copy of 
all eTRCs, both options C and D should rely on a publicly accessible portal to query 
for  a  copy  of  the  original  eTRC  based  on  the  unique  reference  number.  However 
this  means  that  anyone  with  access  to  the  unique  reference  number  would  have 
access  to  the  information  contained  in  the  eTRC,  and  opens  the  possibility  of 
unauthorised access to eTRCs by brute-force guessing of reference numbers. 

Recommended way forward 

Assuming  all  elements  being  equal,  based  on  the  7  criteria  compared  above,  option  B 
seems to be the best-suited solution for implementing digital tax residence certificates. 

However, adjusting the weights to decrease risk avoidance and increase the importance 
of  data  privacy  and  security,  the  gap  between  option  A  and  B  becomes  more  narrow, 
while options C and D fall further behind. 

Furthermore,  the  need  for  revocation  of  issued  eTRCs  increases  the  cost  of  option  B, 
resulting in option A taking a narrow lead. 

143 

ApproachIT solutionWeightVerifiable Credentials (A)Electronic Seals (B)Data publication (C)Data querying (D)Technical complexity1Cost1Innovation risk1Data privacy1Data security1Network capacity1Business impact1Overall *71.141.570.710.71CryptographyInformation Exchange* Weighted rating on a scale of 0 (not recommended) to 2 (recommended)ApproachIT solutionWeightVerifiable Credentials (A)Electronic Seals (B)Data publication (C)Data querying (D)Technical complexity1Cost1Innovation risk0.5Data privacy2Data security2Network capacity1Business impact1Overall *8.51.411.470.470.59* Weighted rating on a scale of 0 (not recommended) to 2 (recommended)CryptographyInformation Exchange 
 
  
As a compromise between the timeline of this use case and the benefits  of greater data 
privacy  and  data  security,  we  recommend  implementing  options  A  and  B  in  parallel. 
Option B’s greatest benefits are its technical simplicity, low cost, and compatibility with 
manual  verification  (i.e.  removing  the  necessity  for  automated  implementation  by  all 
verification service providers) and the fact that it could be used immediately. Option A is 
the  most  innovative  approach  and  excels  at  data  privacy  and  security,  however  its 
implementation could be feasible only over a longer timeframe.  

Both  options  complement  each  other  as  option  B  could  provide  a  reliable  baseline 
implementation in the shortest possible timeframe, whilst the gradual uptake of option A 
could enhance the usage of tax residence certificates by providing increased data privacy 
and  security  for  investors  comfortable  with  using  digital  wallets,  potentially  at  a  later 
point in time (to compensate for the related innovation risk).  

We therefore propose the following implementation strategy: 

  2023: We propose to start with option B and have tax administrations implement 
functionality  on  their  national  portals  to  enable  citizens  or  businesses  to 
authenticate with their national eID and download  their tax residence attestation 
as PDF documents electronically sealed with eIDAS-compliant digital signatures.  
  Option  A  would  be  implemented  simultaneously,  which  means  having  tax 
administrations  offer  the  possibility  for  citizens  or  businesses  to  download  the 
same tax residence certificates in a second, “alternative” format aligned with the 
verifiable  credentials  specifications  supported  by  the  EBSI.  This  will  “test  the 
waters”  and  gradually build traction for the adoption of  eTRCs  by the investors 
using a digital wallet and test the support of tax administrations and actors in the 
financial community (in particular, banks and WHT agents).  

  We  propose  to  carry  out  an  eTRC  pilot  in  2023  with  a  small  set  of  tax 
administrations  and  national  eID  providers  (to  pilot  both  options  A  and  B),  as 
well as a bank and a WHT agent (to pilot  option A specifically). Once the trust 
ecosystem is established, it would be expected that an increasing set of verifiers 
will pick up use of one or the other option for electronic attestations rapidly. 
In  parallel,  we  propose  to  closely  monitor  the  progress  of  the  eIDAS  Experts 
Working Groups coordinated by the Commission (DG CNECT Unit H4). A first 
important milestone is the completion and publication by the Commission of the 
initial form of the eIDAS 2.0 toolbox October 2022.  

  2024-2025:  As  the  implementation  of  the  European  Digital  Identity  (EUDI) 
wallet  and  eIDAS  2.0  large-scale  pilots  progress  and  the  Implementing  Act  for 

144 

ApproachIT solutionWeightVerifiable Credentials (A)Electronic Seals (B)Data publication (C)Data querying (D)Technical complexity1Cost1Innovation risk0.5Data privacy2Data security2Network capacity1Business impact1Overall *8.51.411.350.470.59CryptographyInformation Exchange* Weighted rating on a scale of 0 (not recommended) to 2 (recommended) 
 
the EU Digital Identity Regulation is being drafted, we would propose the eTRC 
pilot participants to complement their support with eIDAS 2.0 formats. 

The proposed approach offers the benefit of decoupling the timelines for availability of 
the  EBSI-based  verifiable  credentials  infrastructure  on  the  one  hand,  the  eIDAS  2.0 
infrastructure  and  entry  into  force  of  the  EU  Digital  Identity  Regulation  on  the  other 
hand. It therefore allows us to provide an “immediate” solution based on existing eIDAS 
building blocks, in order to support the WHT policy and procedures already now as the 
upcoming  eIDAS  and  EU  Digital  Identity  proposals  continue  through  the  legislative 
process. As a next step up, this short- to mid-term solution can then be enriched towards 
full adherence to the expectations of EU citizens and businesses in the context of the EU 
Digital Identity Framework. 

Challenges 

We have identified several challenges related to the recommended options A and B, both 
for initial activities in 2023, as well as further activities in 2024/2025. These would have 
to be taken into account and mitigated in the course of the roll-out phase. 

For the short- to mid-term solutions and pilot (2023): 

  Related to option A:  

o  Risks  related  to  being  a  frontrunner  as  standards  are  emerging  (W3C, 

revocation approach) 

o  For legal entities, the market for desktop or cloud wallet apps needs to be 

further developed. 

o  Empowerment (and liability) of closest EU custodian 
o  Need  to  clarify  incentives  for  the  private  sector  to  develop  wallets  and 
other  user  software  (it  is  expected  that  once  electronic  attestations  will 
have  the  same  legal  force  as  paper  attestations,  all  actors  will  be 
incentivised to implement this model). 

o  Current  wallets  have  limitations,  among  which  lack  of  portability  of 
credentials (portability of information across wallets and wallet providers 
is addressed in a study by DIGIT which should be launched after the 2022 
summer break and of which outcomes expected end of 2022). 

o  EBSI  solution  components,  roadmap  and  resources  are  not  under  DG 
TAXUD’s but under the EBP’s control, which requires close collaboration 
with DIGIT and DG CNECT and discussions within the EBP governance 
context. 

o  Risk of lack of ability or willingness of natural persons to use a personal 

digital wallet. 

o  Risk  of  lack  of  adequate  communication  about  data  privacy  and 
protection  capabilities  offered  by  verifiable  credentials  and  selective 
disclosure – in particular, avoiding campaigns of distrust and complexity 
frequently seen at the launch of a new citizen-facing technology. 

145 

 
  Related to option B:  
o  eIDAS 

interoperability 

tax 
administrations - mutual recognition of national eID systems needs to be 
improved - this is not under DG TAXUD’s control. 

is  not  yet  ensured  between  all  EU 

o  As WHT agents are private actors, most of them are probably not yet able 

to participate in the eIDAS system. 

For the EUDI / eIDAS 2.0 based solution (2024-2025):  

1) 

2) 

Lack of alignment between MS on national eID: eIDAS 2014 did not incentivise 
Member  State  authorities  to  develop  a  national  digital  ID  and  to  make  it 
interoperable with the ones of other Member State authorities. This results today 
in high discrepancies between countries. One of the objectives of the eIDAS 2.0 
proposal  is  to  address  these  shortcomings  by  improving  the  effectiveness  of  the 
framework  and  extending  its  benefits  to  the  private  sector  and  to  mobile  use 
(digital wallet). 

Getting  the  EUDI  Personal  Wallet  ready  by  the  end  of  2024,  including  a  large-
scale pilot, is a tight timeframe. The regulatory process under way for the EUDI 
framework  and  eIDAS2.0  involves  negotiations  on  some  controversial  topics 
(such as the need for unique identification of persons and entities, the need for a 
“high”  level  of  assurance).  This  process  will  also  need  to  be  given  appropriate 
priority by the new Presidency. 

Additional  information  on  digital  identity  and  credentials  as  well  as  related 
regulatory landscape 

The EU Digital Identity Framework  

On 3 June 2021, the Commission proposed a framework for a European Digital Identity 
(EUDI) which will be available to  all EU citizens, residents, and businesses in  the EU. 
Citizens  will  be  able  to  prove  their  identity  and  share  electronic  documents  from  their 
European Digital Identity wallets with the click of a button on their phone; they will be 
able  to  access  online  services  with  their  national  digital  identification,  which  will  be 
recognised  throughout  Europe.  Building  the  EU  Digital  Identity  Framework  is  a  key 
priority  for  the  EU,  as  announced  in  2020  by  President  of  the  European  Commission 
Ursula von der Leyen.  

The revision of the eIDAS regulation  

However,  in  its  current  form,  which  entered  into  force  in  2014,  the  eIDAS  Regulation 
does not currently appear fit for the EUDI; among other limitations, it was developed for 
public services, not so much for the private sector. The EU Council concluded in October 
2020 that the current eIDAS system was no longer appropriate to address the EU’s new 
expectations:  The  EU-wide  framework  for  secure  eID,  including  interoperable  digital 
signatures,  shall  provide  EU  citizens  (residents  and  businesses)  with  control  over  their 
online  identity  and  data  as  well  as  enable  access  to  public,  private  and  cross-border 
digital services.  

Consequently,  the  EU  Commission  proposed  an  upgrade  to  the  eIDAS  Regulation, 
provisionally referred to as “eIDAS 2.0” (the regulatory process is currently under way).  

146 

 
eIDAS 2.0 will be based on 3 pillars: 

1) 
2) 

3) 

Improve mutual recognition of national eID systems. 
Enable private providers to offer trusted services linked to digital identity-based 
qualified  trust  services  anchored  in  national  eIDs.  With  this  proposal,  the 
Commission expects to achieve a well-developed market for novel trust services 
offered by the private sector (including decentralised electronic ledgers). 
Enable the EU citizen to request, store, select, combine, and share his/her digital 
identity  data  using  a  secure  personal  wallet  application  on  mobile  devices.  EU-
wide attestation of electronic attributes is a  novelty that enables cross-border use 
cases;  in  addition,  attributes  could  be  combined  to  authenticate  in  certain  use 
cases  (<>  national  eID),  improving  data  privacy  and  personal  data  protection 
(data minimisation). 

Very  importantly,  since  every  EU  citizen  would  have  access  to  such  a  wallet,  the 
Commission’s  proposal  includes  making  it  mandatory  for  gatekeeper  services  (on 
platforms such as facebook, etc.) to offer the possibility to log in with the eIDAS wallet 
as one of the login options. 

Many  economic  actors  in  digital  identity  are  showing  significant  interest.  Private 
consortia  are  already  building  wallet  applications.  eIDAS  is  an  important  topic  for 
standardisation  bodies  worldwide  and  will  influence  how  other  parts  of  the  world  are 
regulating digital identities. 

At  the  same  time,  the  Commission  also  proposed  to  develop  a  common  “eIDAS  2.0” 
toolbox  (architecture,  standards,  and  specifications)  to  serve  as  a  reference  point  for 
further  elaborating  the  Implementing  Act  after  adoption  of  the  EU  Digital  Identity 
Regulation. Elaboration will be carried out by the Member States with coordination and 
support by the Commission as well as contributions from the private sector.  

147 

 
 
 
List of endnotes: 

(1)  

4th  AMLD:  Directive  (EU)  2015/849  (20 May  2015)  of the European  Parliament and  of  the  Council;  5th  AMLD:  Directive 
(EU) 2018/843 (30 May 2018) of the European Parliament and of the Council 

(2)  WHT for the purpose of this initiative are the taxes levied over gross dividends or interests in the country of the investment 

(source country) by the security/debt issuer or the WHT agent. 
(3)      Country where the issuer of the securities is resident for tax purposes 
(4) 

(5) 

(6) 
(7) 

(8) 

(9) 

(2020), 

The WHT procedures cover all the necessary steps in order for the taxpayer to receive taxes withheld in excess back from the 
source country. 
In  this  case,  reduced  rates/exemptions  laid  down  in  the  double  tax  treaty  over  cross-border  passive  payments  done  between 
residents of signatory countries. 
Large-scale tax fraud schemes in several MS brought to light by journalists’ investigations. 
ESMA 
(https://www.esma.europa.eu/sites/default/files/library/esma70-
15510272_final_report_on_cum_ex_and_other_multiple_withholding_tax_reclaim_schemes.pdf). 
The Giovannini Group, which was formed in 1996, consisted of financial market participants and met under the chairmanship 
of Dr. Alberto Giovannini. 
The  Giovannini  Group 
(https://ec.europa.eu/info/sites/default/files/first_giovannini_report_en.pdf). 
The Giovannini Group (2003), ‘Second report on EU clearing and settlement arrangements’. 

‘Cross-border  clearing  and  settlement  arrangements 

the  European  Union’ 

and  withholding 

Cum/Cum 

Cum/Ex, 

schemes 

reclaim 

(2001), 

report 

Final 

tax 

on 

in 

(10)  The FISCO group was comprised of experts from the financial industry, academia and Commission services. 
(11)  European Commission (2006), ‘Fact finding study on fiscal compliance procedures related to clearing and settlement within the 

EU’, Fiscal Compliance Experts’ Group. 
European  Commission  (2007),  ‘Solutions  to  fiscal  compliance  barriers  related  to  post-trading  within  the  EU’,  Fiscal 
Compliance Experts’ Group. 

(12)  European  Commission  (2009),  Commission  Recommendation  of  19 October  2009  on  withholding  tax  relief  procedures, 

2009/784//EC. 

(13)  European  Commission  (2017),  Code  of  conduct  on  withholding  tax,  Directorate-General  Taxation  and  Customs  Union, 

Ares(2017)5654449. 

(14)  OECD (2013), TRACE implementation package for the adoption of the authorised intermediary system: A standardised system 
for  effective  withholding  tax  relief  procedures  for  cross-border  portfolio  income  (https://www.oecd.org/ctp/exchange-of-tax-
information/treatyreliefandcomplianceenhancementtrace.htm). 
IRS  (2022),  ‘Qualified  Intermediary  (QI),  Withholding  Foreign  Partnership  (WP),  and  Withholding  Foreign  Trust  (WT) 
Application and Account Management System’ (https://www.irs.gov/businesses/corporations/qualified-intermediary-system). 

(15) 

(16)  Ursula  Von  der  Leyen  (2019),  ‘A  Union  that  strives  for  more:  My  agenda  for  Europe’,  Political  guidelines  for  the  next 

European Commission 2019–2024. 

(17)  European  Commission  (2020),  Commission  Communication  –  An  action  plan  for  fair  and  simple  taxation  supporting  the 

recovery strategy, COM(2020) 312 final. 

(18)  European Commission (2020), Commission Communication – A Capital Markets Union for people and businesses-new action 

plan, COM/2020/590 final  (europa.eu). 

(19)  The  HLF 

is  made  up  of  28  high-level 
https://ec.europa.eu/info/news/cmu-high-level-forum-final-report_en.  

capital  markets 

experts.  Further 

information 

available 

at: 

(20)  European 

Parliament 

(2022), 

Report 

on 

European 

withholding 

tax 

framework, 

2021/2097(INI) 

(https://www.europarl.europa.eu/doceo/document/A-9-2022-0011_EN.html). 

(21)  Dividend arbitrage makes reference to treaty shopping practices in order to apply a lower WHT rate than really entitled to. 
(22)  Council  of  the  European  Union  (2011),  Council  Directive  2011/96/EU  of  30 November  2011  on  the  common  system  of 
taxation applicable in the case of parent companies and subsidiaries of different Member States (recast), Official Journal of the 
European Union, OJ L 345, 29.12.2011, p. 8–16 (https://eur-lex.europa.eu/legal-content/en/TXT/?uri=CELEX:32011L0096). 

(23)  Council  of  the  European  Union  (2003),  Council  Directive  2003/49/EC  of  3 June  2003  on  a  common  system  of  taxation.  
applicable to interest and royalty payments made between associated companies of different Member States, Official Journal of 
the European Union, OJ L 157, 26.6.2003 (EUR-Lex - 32003L0049 - EN - EUR-Lex (europa.eu)). 

(24)  For further information on interests’ WHT rates, please check comparative chart in Annex 8. 
(25)  Provided by EFAMA (European Fund and Asset Management Association) through targeted consultation 
(26)  Provided by Divizend through targeted consultation 
(27)  Withholding tax on dividends, survey for investors in the European Union, Better Finance, March 2023 
(28) 

JRC updated in 2016 a study which was performed in 2009 for the Economic Impact of the Commission Recommendation on 
Withholding  Tax  Relief  Procedures  and  the  FISCO  Proposals,  available  at:  10-2009_STUDY.doc  (europa.eu)  with  similar 
outcome.  

(29)     The WHT costs can be broken down into foregone, administrative and opportunity costs as explained further in chapter 5. 
(30)  Correctiv,  21  October  2021,  “CumEx  Files  2.0:  How  did  we  calculate  €150  billion  in  tax  loss?”.  Note  that  the  estimates 
undertaken by Correctiv and Mannheim University do not take into account all Member States (eight for Cum/Cum and four 
for Cum/Ex schemes), therefore figures could be underestimated. 

(31)  Annex 9 Explanation of the financial value chain 
(32)  European  Commission  (2020),  ‘A  new  vision  for  Europe’s  capital  markets’,  final  report  of  the  High  Level  Forum  on  the 

Capital Markets Union, p. 80 
(https://ec.europa.eu/info/sites/default/files/business_economy_euro/growth_and_investment/documents/200610-cmu-high-
level-forum-final-report_en.pdf). 

(33)  The Shareholder Rights Directive (SRD2 (Directive (EU) 2017/828)) lays down a common regulatory framework with regard 
to the minimum standards for the exercise of shareholder rights in EU listed companies. Article 3a of the SRD 2 introduces a 
regime  on  the  right  of  listed  companies  to  know  the  personal  data  of  their  shareholders.  Note  that  there  is  no  common  EU 
definition of shareholder at EU level. 

148 

 
                                                 
 
 
 
(34)  Bilateral  meetings  with  following  Member  States:  Denmark,  Germany,  The  Netherlands,  Ireland,  Finland,  Sweden,  Spain, 

Italy, Belgium, Luxemburg, Austria, Czechia, Poland and Bulgaria.  

(35)      Annex 8 Reporting obligations to tax administrations in the source member state 
(36)  Council of the European Union (2014), Council Directive 2014/107/EU of 9 December 2014 amending Directive 2011/16/EU 

as regards mandatory automatic exchange of information in the field of taxation, OJ L 359, 16.12.2014. 

(37)  Know Your Customer rules require financial institutions to identify and verify the identity and key features of a client (such as 
her/his  risk  tolerance,  investment  knowledge,  and  financial  position)  when  opening  an  account  and  during  the  business 
relationship. 

(38)  European  Central  Bank  (2021),  Survey  on  barriers  to  digitalisation  in  securities  post-trade  services  –  Summary  of  outcome, 
AMI-SeCo  Harmonisation  Steering  Group  (https://www.ecb.europa.eu/paym/groups/shared/docs/36393-2021-12-07-08_ami-
seco_item_3.4.3_survey_on_barriers_to_digitalisation_in_post-trade_services.pdf). 

(39)  Bilateral  meetings  with 

following  Member  States:  DK/DE/NL/IE/FI/SE/ES/FR/IT/BE/LU/AT/CZ/PL/BU.  Targeted 
consultation  with  other  stakeholders  such  as  OECD,  ESMA,  GLEIF,  EBF,  EY,  AGC,  EUROCLEAR,  EFAMA,  European 
Parliament, etc. 

(40)  According  to  JRC  study,  foreign  portfolio  investments  in  EU  capital  markets  decrease  between  6,2 %-8,2 %  in  average  for 

(41) 

every 10 points reduction in non-refundable WHT (see Annex 4). 
It entails passive or hands-off ownership of assets as opposed to direct investment, which would involve an active management 
role. 

(42)  See JRC study in Annex 4  
(43)  A mapping chart of the divergent WHT regulation and practices across MS is laid down in Annex 7. 
(44)   According  to  the  ‘TRACE  Implementation  Package  (TRACE  IP)’,  approved  in  February  2013  by  the  OECD,  WHT  agents 
registered  as  authorised  intermediaries  are  allowed  to  apply  exemptions  or  reduced  rates  of  WHT  directly  when  the 
dividend/interest payment takes place (relief at source). 

(45)  For further information check Annex 8. 
(46)     For further information check Annex 10. 
(47)  Ursula  Von  der  Leyen  (2019),  ‘A  Union  that  strives  for  more:  My  agenda  for  Europe’,  Political  guidelines  for  the  next 

European Commission 2019–2024. 

(48)  Further details on Member States’ current systems are provided in Annex 7. 
(49)    Recent JRC studies are included in Annex 4. 2021 study explains the divergent WHT costs estimations between 2016 JRC’s 

study and 2021 update. 

(50)   This opportunity cost does not take into account any benefit that the tax authority could derive from earning a risk-free rate on 

the money during the delayed payment of tax refunds. 

(51)   Note  that,  although  using  different  methodologies,  the  change  of  0.047%  in  GDP,  according  to  the  CORTAX  simulation, 

features close to the 0.031% increase in GDP estimated in Cobb-Douglas basis. 

(52)   On the estimation, we refer to the figures laid down in the risk of fraud problem explanation under chapter 2 
(53)    Therefore,  eTRC  would  not  solve  current  substantial  problems  regarding  divergent  tax  residence  concepts  across  Member 

States 

(54)      Further information about the reporting obligations in Annex 11 
(55)   Customer  due  diligence  is  regulated  by  the  AMLD  framework,  especially  in  Directive  (EU)  2015/849  of  the  European   
Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money 
laundering or terrorist financing. 
‘Bulk’ request means in this context the possibility of submitting refund requests by the financial intermediaries simultaneously 
on behalf of their clients in a single IT format that makes it possible to fully automatize the procedure of filing and tracing the 
refund request (not in aggregated basis but investor-specific information instead). 

(56)  

(57)  According to  current  available  data on dividends payments:  Austria, Belgium,  Denmark,  Finland,  France,  Germany,  Ireland, 
Italy, Poland, Portugal, Slovenia, Spain and Sweden. For further information on WHT rates, please check comparative chart in 
Annex 8. 
Inspired  from  the  Treaty  Relief  and  Compliance  Enhancement  (TRACE)  Implementation  Package  approved  at  OECD  level 
(2013) and implemented by Finland in 2021. 

(58) 

(59)   Both Actions Plans include the measure of establishing a relief at source system across the EU mirroring TRACE OECD model 
(60)   A  ‘pre-defined  timeframe’  or  a  ‘set  timeframe’  refers  to  a  specific  period  of  time  whereby  the  tax  administration  needs  to 
refund the excess tax withheld back to the investor provided the requirements to access the Quick refund system are met (i.e. 40 
calendar days). 

(61)  Note that it is likely that, in practice, both relief at source and Quick refund systems coexist in a same Member State depending 

on the risk management strategy designed by tax administrations.. 

(62)   Direct  investment  implies  control  over  the  company  distributing  dividends,  therefore,  in  these  situations,  there  is  no  lack  of 
information on who is the final investor and thus which WHT rate should apply. Therefore, the described problem in the  IA 
does  not  take  place  when  talking  about  direct  investments.  If  the  dividend/interest  payment  to  direct  investors  takes  place 
within  the  EU,  then  these  payments  should  be  covered  by  the  Parent-Subsidiary  Directive  and  the  Interest  and  Royalty 
Directive. 

(63)   Spanish Quick refund system establishes between 10 and 40 days as deadline to make the refund under the Quick refund system 
(64)   See Annex 10 for an overview of the average time to have refunds done across Member States in the context of the summary of 

the findings during the follow-up works to the Code of Conduct according to Surveys conducted in 2019 and 2020. 

(65)   Fines are envisaged for financial intermediaries in case of non compliance with the obligations set up under the Quick refund 
system: reporting, due diligence or refund request. In order to enforce such obligations, proportional, effective and dissuasive 
sanctions are needed. Further, clear liability rules will need be established to avoid unnecessary disputes.  
In order to entice tax administrations to process request and pay-out within the set timeframe a minimum interest will need to 
be added on the outstanding amount as soon as the date of payment is passed as a reasonable compensation for the taxpayers. It 
is not expected that an increase of litigations will occur as it should work in favour of the taxpayer. 

(66)  

(67)  These cost savings embed 3 concepts: reduction of opportunity costs, decrease in foregone tax relief and decrease in incurred 

administrative costs, see table 12 for further clarification 

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(68)   According to Tool 22 of the Better Regulation Toolbox, the ‘SME test’ has to be performed where proportionate. Under the 
first step of the ‘SME test’ affected business by the initiative must be identified. SME are not identified as a relevant affected 
business by the current initiative. 

(69)   According to the CPIS sector survey, non-financial corporations comprise a much smaller share of intra EU FPI cross-border 

securities at 31 December 2019 (2.44%) as compared to retail investors (12.86%). 

(70)   Digital  WHT  main  method  of  submission:  Austria,  Belgium,  Denmark,  Spain,  Ireland,  Netherlands;  minority  method  of 
submission: Germany and Slovakia; and digital submission not possible: Italy, Poland, Sweden, Finland, Luxembourg, Latvia. 
No replies were received from the remaining Member States. 

(71)  The costs incurred by financial intermediaries to set-up the reporting systems and provide the information required to the tax 

authorities may ultimately be passed on to final investors. 

(72)  Correctiv,  21  October  2021,  “CumEx  Files  2.0:  How  did  we  calculate  €150  billion  in  tax  loss?”.  Note  that  the  estimates 
undertaken by Correctiv and Mannheim University do not take into account all Member States (eight for Cum/Cum and four 
for Cum/Ex schemes), therefore figures could be underestimated. 

(73)   Germany, Luxembourg, Austria, Hungary, Denmark and Belgium. Investigations are also performed in the United Kingdom. 
(74)   Figures based on the 2021 YA AEOI Survey of Member States for the DAC. 16 Member States reported implementation costs 

and 12 Member States reported recurring costs for DAC6. 

(75)   Note  that  in  case  only  significant  or  large  credit  institutions  instead  of  all  financial  intermediaries  operating  safekeeping 
activities within the EU were obliged to register and, hence,  report information, reporting costs and other costs associated to 
WHT  procedures  alike  would  be  reduced  around  10%  (average  market  share  of  EU  significant  credit  institutions  represents 
82% of the EU market according to ECB sources. Note that other less significant credit institutions might sign up as well for 
the relevant National Register). 

(76)   Non-resident intermediaries report to the Finnish and Irish tax authorities under their relief at source systems. Such reporting 

(77) 

obligations are not required under the refund systems of Member States. 
https://www.vero.fi/en/businesses-and-corporations/business-operations/financial-sector/nominee-registered-shares/authorised-
intermediary/  

(78)   The  increase  of  the  average  rate  in  Finland  is  due  partially  to  potential  fraud  prevention  but  as  well,  and  very  importantly, 
because the internal WHT rate was raised from 30% to 35% in an attempt to encourage financial intermediaries to register as 
Authorized Intermediaries. 

(79)   Note  that  the  970  million  of  administrative  savings  are  based  on  the  assumption  that  actual  costs  related  to  the  reclaim 
procedures amounts for an average of 2% of the refundable amounts as explained in the JRC’s studies compiled in Annex 4. 
Those studies rely on data from EU and non-EU investment towards the EU. 

(80)   Note that the relief at source system to be implemented under option 2 has broader scope than in most of the Member States 

where relief at source is currently in place, where relief at source procedures are normally partially applicable. 

(81)   Directive (EU) 2017/828 of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC as 

(82) 

regards the encouragement of long-term shareholder engagement 
https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13031-Withholding-taxes-new-EU-system-to-avoid-
double-taxation_en  

(83)  These Member States were the following: Austria, Belgium, Germany, Denmark, Spain, Finland, France, Ireland, Italy, Poland, 

Portugal, Slovenia and Sweden.  

(84)  Represented  stakeholders:  ICI  Global,  EBF,  BNY  Mellon,  Brown  Brothers  Harriman,  JPMorgan,  State  Street,  JPMorgan 

(85) 
(86) 

Chase, Morgan Stanley, EFAMA, ALFI, The Investment Association (UK), EY, Euroclear, and Clearstream.  
Included participating organisations: BNP Paribas, BNY Mellone, Baker McKenzie 
https://www.vero.fi/en/businesses-and-corporations/business-operations/financial-sector/nominee-registered-shares/register-of-
authorised-intermediaries/  

(87)   2 of the 3 respondents were part of the same group of financial intermediaries but located in different Member States. 
(88)   10-2009_STUDY.doc (europa.eu) 
(89)   For this analysis we use the term retail investors which for our purposes is aligned with the definition of households and non-

(90)  

profit institutions serving households in the CPIS Survey. 
Indirect holding of securities occurs when a non-resident security is included in a fund, for example a UCITS, and then this 
fund sold to the investor. This compares to direct holding of securities when a non-resident security/fund is sold directly by a 
financial intermediary to the investor and not through a fund. When relying on CPIS data, indirect holding of securities cannot 
be allocated to retail investors. 

(91)   ECB working Paper Series: Shifts in the portfolio holdings of euro area investors in the midst of COVI-19: looking through 

investment funds. 

(92)   Fact Book | EFAMA 
(93)   CORTAX  (short  for  CORporate  TAXation)  is  a  Commission  model  which  is  used  to  simulate  the  impact  of  corporate  tax 
policy  decisions  on  many  key  features  of  the  economy  including  multinational  profit  shifting,  investment  decisions,  loss 
compensation and the debt-equity choice of firms. 

JRC internal note on Simplified Procedures for Claiming Cross-Border Tax Relief, JRC100967.  

(94)   https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:279:0008:0011:EN:PDF  
(95)  
(96)   https://ec.europa.eu/info/publications/2015-action-plan-building-capital-markets-union_en  
(97)   https://ec.europa.eu/taxation_customs/sites/taxation/files/2020_tax_package_tax_action_plan_en.pdf  
(98)   The  figures  used in the previous  cost  calculation  exercises  may  slightly  differ  due  to periodic  retroactive update  of  different 

vintages of the CPIS data.  

(99)   Multiple  rates in  table  2  reflect  the  fact  that different tax  rates  might  be applicable  in  specific instances.  In  case  of  multiple 

rates, the most relevant tax rate has been considered in the calculations.   

(100)   Average over the period 2008-2019. Source: Datastream. 
(101)   Average  corporate  bond  yields  over  the  period  2008-2019.  Source:  Datastream.  The  use  of  aggregate  instead  of  country-

specific averages overcomes issues of availability of long enough time series for some countries.  

(102)   The risk free interest rate is proxied with the 3-month Euribor rate, average over the 2008-2019 period. Source: Datastream.  
(103)   See p.54 of the 2009 IA study.   

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(104)   While  a  lot  of  uncertainty  surrounds  the  quantification  of  this  variable,  the  10%  is  a  conservative  value  in  line  with  the 
parameterization in the 2009 IA. The document reports that “according to the practical experience of the large European bank, 
(…)  with  widely  spread  customers  holding  custody  accounts  approximately  40%  –  50%  of  such  domestic  resident  investors 
forego  their  tax  relief.  (…)  Depending  on  the  composition  of  the  customers  and  the  composition  of  their  investments  these 
figures  may  vary  considerably.  Precise  figures  for  the  value  of  EU  tax  reclaim  entitlements  which  go  unclaimed  are  very 
difficult to obtain. Industry participants estimate, however, that around 30% by value of the entitlements of retail clients are 
not claimed.” Hence, we run the sensitivity analysis up to an upper bound of 30%.  

(105)   See, ECB (2018), Disentangling euro area portfolios: new evidence on cross-border securities holdings.  
(106)   In particular, we use data on Financial Balance Sheet (nasa_10_f_bs).  
(107)   This section was prepared by Andrzej Stasio and Maria Gesualdo (JRC.B2).  
(108)  For  an  extensive  discussion  on  estimating  gravity  models  using  the  PPML  estimator,  see  Yotov,  Y.  V.,  Piermartini,  R., 
Monteiro,  J.-A.  and  Larch, M.  (2016).  An  Advanced  Guide  to  Trade  Policy  Analysis:  The  Structural  Gravity  Model,  World 
Trade Organization, Geneva. 

(109)  Note that a simple log-linear specification is problematic due to the presence of zero FPI stocks. In particular, taking a log of 
zero FPI stocks is not possible, so that these observations would be excluded from the sample leading to sample-selection bias. 
To  circumvent  this  problem,  early  literature  proposed  to  add  a  small,  arbitrary,  value  to  zero  FPI  stocks.  However,  such  an 
approach yields biased estimates. 

(110)  See  Weidner,  M  and  Zylkin,  T.  (2021).  “Bias  and  Consistency  in  Three-way  Gravity  Models".  Journal  of  International 

Economics, 132, 103513. 

(111)  For more details, see pages 22-24 in Yotov, Y. V., Piermartini, R., Monteiro, J.-A. and Larch, M. (2016). An Advanced Guide 

to Trade Policy Analysis: The Structural Gravity Model, World Trade Organization, Geneva. 

(112)  For details, see Head, Keith, and Thierry Mayer. 2014. “Gravity Equations: Workhorse, Toolkit, and Cookbook.” In Handbook 
of  International  Economics,  vol.  4,  edited  by  Gita  Gopinath,  Elhanan  Helpman,  and  Kenneth  Rogoff,  131–95.  Amsterdam: 
North-Holland. 

(113)  These results are closely matching previous estimates of the costs resulting from withholding tax relief procedures  – see also 

the updated JRC note on “Simplified procedures for claiming cross-border tax relief”. 

(114)  Clearing by a central counterparty clearing house guarantees reciprocal performance between two counterparties and is used for 

derivatives, equities, fixed income instruments, as well as repo and securities lending transactions. 

(115)  Settlement is the completion of a securities transaction where it is concluded with the aim of discharging the obligations of the 

parties to that transaction through the transfer of cash or securities or both. 

(116)  Asset servicing relates to the processing of events during the life of a security. It enables an investor to benefit from rights or 
exercise  rights  relating  to  the  holding  of  a  securities  position.  Asset  services  include  custody  services  and  related  corporate 
action processing, tax processes, registration processes, shareholder identification processes and general meeting processes, as 
well as value added and ancillary services. 

(117)  Post-trade reporting is the reporting of individual transactions and/or positions of nominated participants. 
(118)  European  Commission  (2017),  European  Post  Trade  Forum  report,  p. 15  (https://ec.europa.eu/info/sites/default/files/170515-

eptf-report_en.pdf) 

(119)  Further information can be found in the 2012 AFME paper on securities account structures: 

https://www.afme.eu/portals/0/globalassets/downloads/consultation-responses/afme-ptd-csd-acct-structure-final-report-for-
publication-19-mar-2012.pdf. 

(120)   More  information  about  “Cum/Ex  scandal”  can  be  found  at  ESMA’s  (European  Securities  and  Markets  Authority)  website: 

https://www.esma.europa.eu/document/preliminary-findings-multiple-withholding-tax-reclaim-schemes 

(121)   https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32009H0784&from=EN  
(122)   Note  that the  Code  of Conduct  is  focusing mostly  on  cross-border  investors  along  the  EU,  not  on  outbound payments  made 

outside the European boundaries. 

(123)   For the purposes of this paper, UK has been taken into account as it represents the state of play in years (2018 and 2019) when 

the UK was still an EU Member State. 

(124)   https://ec.europa.eu/taxation_customs/business/tax-cooperation-control/guidelines-model-european-taxpayers-code_en  
(125)   This document goes through all the questions/indicators included in the 2018 and 2019 EU surveys. The questions/indicators 

have been grouped by topics for the sake of streamlining the information and better understanding of the reader. 

(126)   Each indicator represents the picture of the state of play at the end of 2019. Note that some graphics do not count on 28 inputs 

due to the lack of responses from all MS. 

(127)   Further  info  on  Finnish  experience  on  TRACE  +  QRS  after  one  year  of  effective  implementation  in  the  following  link: 
https://www.vero.fi/en/About-us/newsroom/news/uutiset/2022/reduced-tax-at-source-was-applied-to-over-50-of-the-dividends-
paid-on-nominee-registered-shares-last-year--small-investors-also-benefitted-from-the-introduction-of-the-trace-procedure/  

151