In a significant move to simplify the tax payment process for cross-border investments within the European Union, new rule changes were approved on Tuesday aimed at enhancing the efficiency of the bloc’s capital markets. The European Council announced that these changes are specifically designed to alleviate issues surrounding “withholding” or double taxation, where cross-border investors face tax obligations both in the EU state where investment instruments are listed and in their home countries.
Currently, the process to claim back taxes that are overpaid due to this double taxation is notoriously cumbersome, which deters investors from venturing outside their home markets. This complication has been a significant roadblock in the EU’s ambition to establish a capital markets union that could rival Wall Street by providing more streamlined fundraising avenues for companies.
The newly approved measures are expected to make it easier for individuals, particularly retail investors, to engage in cross-border investments within European financial markets. This, in turn, is anticipated to bring widespread economic benefits, according to the Council’s statement.
The European funds industry body, EFAMA, has welcomed the deal, acknowledging it as a crucial advancement towards removing tax barriers that have fragmented the capital market in the EU. Antonio Frade Correia, EFAMA’s senior tax advisor, emphasized the importance of practical effectiveness of the proposal and called for continued collaboration between the industry and policymakers to watch over the national implementation of these changes.
As part of the overhaul, by January 2030, investors will have access to a common EU digital tax residence certificate that will facilitate rapid relief from withholding taxes. Additionally, EU member states are mandated to implement procedures that allow for “relief at source” or “quick refund” options to streamline and secure the tax relief process.
The alternative investments sector representative body, AIMA, expressed optimism that this initiative is just the beginning of broader reforms that could eventually establish a comprehensive withholding tax system. Such a system would significantly contribute to the completion of the Capital Markets Union, enhancing the EU’s competitive edge in the global financial landscape.
