On 14 May EU finance ministers finally reached an agreement on a final text of the European Commission’s withholding taxation (WHT) Directive (FASTER). It aims to make WHT procedures in the EU safer and more efficient for cross-border investors, national tax authorities and financial intermediaries, such as banks or investment platforms.
The agreement follows months of intense negotiations between Member States, who had to reach a unanimous decision as always with tax files. However, the final agreement text differs significantly enough from the original Commission proposal, and the European Parliament will need to be consulted on the amended text despite them already providing an opinion on the original Commission proposal.
This means that the final agreement cannot yet become EU law, as the Parliament’s opinion is needed before that can happen – even if that opinion is non-binding. Given that a new European Parliament is now in the course of being elected, and it will take until the Autumn at least for the new members of the Parliament (MEPs) to start working on legislative files, it is likely that a new Parliament opinion should not be expected for a while. And therefore, no official new EU law until that point either. Of course the text might not become EU law for a longer time if the new Parliament for some reason decides to indefinitely delay providing its opinion, but that is a scenario not to be entertained in this article.
Having said that, for businesses and their advisers it is nonetheless important to take note of the final agreement text, as once the final law is adopted it is not expected to differ from the 14 May agreement. The final provisions and the way in which the FASTER system works is relatively complex, but these include some of the key provisions:
All Member States are required to introduce an automated process to issue digital tax residence certificates (eTRC) in a common format. The eTRC is intended to provide evidence to the Member State of the source of the income subject to WHT of where the registered owner is deemed resident. It is also intended that it could be used by Member States for taxation issues relating to tax residence
Certain Member States – with the specific conditions laid out in the Directive – are required to establish a national register of certified financial intermediaries (CFIs). CFIs may submit claims to national tax authorities on behalf of the registered owner of the publicly traded share or bond
Certain Member States – again with the conditions set in the text – are required to implement a system for relief at source and/or a system for quick repayment of tax withheld. A relief at source procedure means that the excess WHT would not be paid in the first place, negating the need for the registered owner of the equity to seek repayment. Access to relief at source and quick repayment can be withheld in specific circumstances, primarily due to an increased risk of abuse
In any case, the rules will not enter into force anytime soon. Member States must transpose it into national laws by 31 December 2028 only, and the actual provisions will apply from 1 January 2030 only.
After FASTER, attention turns to the VAT in the Digital Age (ViDA) proposal, where the finance ministers failed to agree on 14 May. The Belgian Presidency is currently expected to give it another shot at the 21 June ECOFIN meeting.
On 14 May EU finance ministers finally reached an agreement on a final text of the European Commission’s withholding taxation (WHT) Directive (FASTER). It aims to make WHT procedures in the EU safer and more efficient for cross-border investors, national tax authorities and financial intermediaries, such as banks or investment platforms.
The agreement follows months of intense negotiations between Member States, who had to reach a unanimous decision as always with tax files. However, the final agreement text differs significantly enough from the original Commission proposal, and the European Parliament will need to be consulted on the amended text despite them already providing an opinion on the original Commission proposal.
This means that the final agreement cannot yet become EU law, as the Parliament’s opinion is needed before that can happen – even if that opinion is non-binding. Given that a new European Parliament is now in the course of being elected, and it will take until the Autumn at least for the new members of the Parliament (MEPs) to start working on legislative files, it is likely that a new Parliament opinion should not be expected for a while. And therefore, no official new EU law until that point either. Of course the text might not become EU law for a longer time if the new Parliament for some reason decides to indefinitely delay providing its opinion, but that is a scenario not to be entertained in this article.
Having said that, for businesses and their advisers it is nonetheless important to take note of the final agreement text, as once the final law is adopted it is not expected to differ from the 14 May agreement. The final provisions and the way in which the FASTER system works is relatively complex, but these include some of the key provisions:
All Member States are required to introduce an automated process to issue digital tax residence certificates (eTRC) in a common format. The eTRC is intended to provide evidence to the Member State of the source of the income subject to WHT of where the registered owner is deemed resident. It is also intended that it could be used by Member States for taxation issues relating to tax residence
Certain Member States – with the specific conditions laid out in the Directive – are required to establish a national register of certified financial intermediaries (CFIs). CFIs may submit claims to national tax authorities on behalf of the registered owner of the publicly traded share or bond
Certain Member States – again with the conditions set in the text – are required to implement a system for relief at source and/or a system for quick repayment of tax withheld. A relief at source procedure means that the excess WHT would not be paid in the first place, negating the need for the registered owner of the equity to seek repayment. Access to relief at source and quick repayment can be withheld in specific circumstances, primarily due to an increased risk of abuse
In any case, the rules will not enter into force anytime soon. Member States must transpose it into national laws by 31 December 2028 only, and the actual provisions will apply from 1 January 2030 only.
After FASTER, attention turns to the VAT in the Digital Age (ViDA) proposal, where the finance ministers failed to agree on 14 May. The Belgian Presidency is currently expected to give it another shot at the 21 June ECOFIN meeting.
