The FASTER directive will regulate the withholding tax refund

FASTER directive – simplification and savings

The current taxation system for cross-border investments generates not only problems but also costs. According to data collected by the European Commission, the costs of the current system including, among others, tax refund procedures, lost tax reliefs and other expenses amount to EUR 8.4 billion per year. The FASTER directive is supposed to be the solution.

The FASTER Directive will introduce the following key changes:

• Electronic tax residence certificate: Investors will be able to obtain an electronic tax residence certificate, which will make it easier for them to submit tax refund applications digitally
• Two new procedures: In addition to the standard refund procedure, the directive introduces two new mechanisms: relief at source and a quick refund system (Member States will decide whether they want to introduce both procedures or only one of them)
• Greater harmonization: Tax refund procedures will be standardized across the European Union, making them easier to understand and apply

Finance ministers agreed to new solutions, but also proposed some exceptions. Countries will be able to maintain existing procedures in two cases:

• Dividends from listed shares: If a country's system successfully refunds excess withholding tax on dividends paid from listed shares issued by a resident of that country, and the market capitalization of those shares is less than 1.5%, then that country may maintain its current procedures,
• Interest on listed bonds: Countries that already offer a withholding tax exemption on interest paid on listed bonds will also be able to benefit from this exception.

These exceptions are intended to protect the interests of countries in which companies with low market capitalizations or those issuing tax-exempt bonds are registered. In such cases, the use of an electronic tax residence certificate could prove inefficient or excessively complicated.

FASTER Directive - expected benefits

The FASTER directive aims to facilitate cross-border investments in the EU. It is estimated that its implementation will bring tangible benefits to investors and companies, as well as improve the activities of the administrations of Member States.

The main benefits of implementing the FASTER directive are:

• Faster and simpler tax refund for investors
• Lower costs for companies and administration
• Increasing cross-border investment in the EU
• Fairer tax rules

It is worth noting, however, that the FASTER directive will not solve all problems related to double taxation. There will still be situations in which investors will encounter some difficulties in recovering overpaid tax.

Long way to implement the FASTER directive

Although EU Member States' finance ministers have reached agreement on the FASTER directive, the legislative process is still ongoing and it has not yet been adopted.

Before the directive is formally approved by the Council of the European Union, it will be necessary to consult it with the European Parliament. Parliament has an advisory role in this matter, which means that it has the right to submit comments and suggestions, but cannot block the adoption of the directive.

After consulting it with the European Parliament, member state ministers will meet again to officially approve the FASTER Directive.

Then, member states will have to implement the provisions of the directive in their legal systems until the end of 2028. This means that from 1January 2029, new rules on withholding tax refunds may come into force in all EU countries.