At the beginning of February 2018, in support of the Capital Markets Union initiative, the European Commission released a Code of Conduct on Withholding Tax (WHT) aimed at reducing barriers hampering cross-border investments for investors by reducing the double taxation whereby the investor is taxed both at the source of the dividend as well as at the destination (the investor’s country of residence). This is for example the case for Belgian residents who pay 40.5% taxes on dividends received from France, instead of the 30% they pay on dividends from Belgium.
As it stands, refund procedures in cases of double taxation are time- and money-consuming for investors, represent a significant barrier to cross-border investments, and do not comply with the rule of free movement of capital within the EU. Unfortunately the trend across the EU is headed in the opposite direction from what the Code of Conduct is setting out to achieve, with Member States actually becoming increasingly strict with regards to documentation requirements imposed on investors to reclaim withholding taxes across borders, instead of reducing such requirements.
It is for this reason that BETTER FINANCE believes the Code of Conduct should be more ambitious still and stresses that a simple ‘relief at source procedure’ would be the preferable way forward. This procedure already works well between the USA and EU Member States and is free, simple, and effective. It is very unfortunate that this is not working as well between EU Member States themselves, especially now that they benefit from the automatic cross-border exchange of information with the FATCA CRS forms. Whereas BETTER FINANCE welcomes the introduction of a single point for the various reclaim forms, it would have preferred a recommendation to establish an EU-wide simple and standardized reclaim form.
Unfortunately such preoccupations will remain futile as long as EU Member States like Belgium don’t demonstrate a clear willingness to implement this non-binding Code of Conduct. This is not a given, since these same Member States currently avoid refunding or granting tax treaty relief at source for more than €6 billion per year according to the European Commission.
More information:
- Code of Conduct on Withholding Tax - European Commission
- BETTER FINANCE Press Release: Willingness of EU Member States Crucial for Ending Double Taxation of Investment Income within the EU