THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty on the Functioning of the European Union, and in particular Article 115 thereof,
Having regard to the proposal from the European Commission,
After transmission of the draft legislative act to the national parliaments,
Having regard to the opinions of the European Parliament(1),
Having regard to the opinions of the European Economic and Social Committee(2),
Acting in accordance with a special legislative procedure,
Whereas:
Ensuring fair taxation in the internal market and the good functioning of the capital markets union (CMU) are among the key political priorities for the Union. In that context, removing obstacles to cross-border investment, while combating tax fraud and tax abuse is critical. Such obstacles exist, for example, in cases where inefficient and disproportionately burdensome procedures exist to relieve excess taxes withheld at source on dividend or interest income paid on shares or bonds traded publicly to non-resident investors. In addition, in some cases, the current situation has proven to be inadequate in preventing recurrent risks of tax fraud, tax evasion and tax avoidance, as shown by numerous cases of multiple tax reclaim schemes and fraud involving the use of dividend arbitrage or dividend stripping (Cum/Ex and Cum/Cum). Therefore, this Directive seeks to make withholding tax procedures more efficient, while strengthening them against the risk of tax fraud and tax abuse.
In order to strengthen Member States’ ability to prevent and fight tax fraud and tax abuse, which is currently hampered by a general lack of reliable and timely information on investors, it is necessary to provide the possibility of a common framework for the relief of excess withholding taxes on cross-border investments in securities that is resilient to the risk of tax fraud and tax abuse. That framework would lead to convergence among the various relief procedures applied in the Member States while ensuring transparency and certainty with regard to the identity of investors for securities issuers, withholding tax agents, financial intermediaries and Member States, as the case may be. To that effect, the framework should rely on automated procedures, such as the digitalisation of the tax residence certificate in terms of both procedure and form. The framework should also be flexible enough to duly take into account the various systems applicable in different Member States while providing appropriate anti-abuse tools to mitigate the risk of tax fraud, tax evasion and tax avoidance. In that regard, it is necessary to take into consideration the different approaches of tax authorities, depending on the relief system in place. Under the relief-at-source system, tax authorities are only able to obtain relevant information on the investors and the payment chain after relief is applied. By contrast, where a refund system is applied, it is crucial for the tax authorities to obtain adequate information before relief is applied in order to assess whether relief should be granted. In both relief systems, rules on the liability of the financial intermediary are established in case of undue relief. This Directive does not restrict a Member State’s ability to regulate the means by which certified financial intermediaries recoup any outlay incurred while adapting to, or complying with, the obligations laid down by this Directive.
Considering those differences and also the principle of proportionality, the provisions of this Directive regarding national registers of certified financial intermediaries and obligations to report information should not be binding on Member States that have a comprehensive relief-at-source system in place and a market capitalisation ratio below a certain threshold, as defined in this Directive. The objective of promoting efficient and robust systems for the relief of excess withholding tax across the internal market should be considered to have been achieved where Member States that continue to apply their national relief-at-source system fulfil both those criteria as set out in this Directive. First, the market capitalisation criterion correlates with the size of the economy and the possible scale of dividend payments. Low market capitalisation implies low volumes of dividend distributions and therefore a lower risk of tax abuse. When a Member State reaches or exceeds the market capitalisation ratio threshold for a certain period of time, the common rules of this Directive should apply and should remain applicable, irrespective of whether at any time thereafter, its market capitalisation ratio falls below that threshold. Second, comprehensive relief-at-source systems that allow for the application of the appropriate tax rate at the time of payment in a straightforward and efficient manner should be considered to be equivalent to the relief-at-source system set out in this Directive. Those two criteria together can ensure that investors across the internal market have effective access to efficient withholding tax relief procedures in all Member States. For Member States which have a relatively small stock market and whose national relief-at-source system is sufficiently efficient, a requirement to change those systems would not be considered proportionate. Furthermore, as the common rules of this Directive would cover nearly the whole of the internal market, an appropriate level of convergence would be achieved.
This Directive harmonises access to systems of relief for investors in all Member States by providing for a common relief-at-source system and a common quick refund system, while still leaving the possibility for Member States to maintain their national relief-at-source systems, under certain conditions and taking into account the differences in development of Member States’ economies, and while ensuring access to systems of relief in Member States. In any case, depending on risk assessment criteria, the Member States concerned that consider it appropriate, for example, to strengthen their instruments to combat tax fraud and tax abuse, could apply the tools provided for in this Directive.
In order to be considered as comprehensive, a national relief-at-source system should contain a number of specific key features as set out in this Directive. It should provide natural persons or entities that are entitled to such relief broad access and should provide relief if the taxpayer is entitled to it, except in the case of failure to report the information that is required by the Member State. In principle, the required information should not go beyond the data referred to in Articles 12, 13 or 15. The national relief-at-source system should provide access both for direct and indirect investments and should not have additional entry barriers other than those provided in Article 11(2). Thus, the national relief-at-source system should not only provide the legal possibility of relief, but relief should also be de facto granted, in cases where the taxpayer is entitled to it. The national relief-at-source system should not impose an additional obligation such as a parallel system of reporting. The Member State should lay down rules on liability for the loss of withholding tax revenue and penalties applicable to infringements of national provisions on that relief-at-source system. With regard to the condition of the market capitalisation ratio, the European Securities and Markets Authority (‘ESMA’) should provide the data that are required under regulatory technical standards. Where a Member State does not fulfil or no longer fulfils at least one of the two conditions concerning the comprehensive relief-at-source system and the market capitalisation ratio threshold, it should transpose into national legislation all provisions of this Directive.
To ensure a proportionate approach, this Directive should cover procedures to relieve excess withholding taxes only in those Member States that levy withholding tax on cash or stock dividends at different rates depending on the specific investor’s tax residence. In such cases, Member States need to provide relief where a higher rate of tax has been applied in a situation for which a lower rate is applicable. Member States should also have the opportunity to implement similar procedures in relation to interest payments to non-residents on publicly traded bonds, to improve the efficiency of the relevant relief procedure and to ensure a higher level of taxpayers’ compliance. Member States that do not need relief procedures in relation to excess withholding taxes on dividends and interest, as the case may be, are not concerned by the procedures referred to in this Directive. Where relief of excess withholding taxes is needed and to ensure a common access to relief of excess withholding taxes, this Directive should provide for a common relief-at-source system and a quick refund system to be implemented by Member States.
Given that investors could be located in any Member State, rules for a common and digital tax residence certificate (eTRC) should apply in all Member States. To ensure that all Union taxpayers have access to a common, appropriate and effective proof of their tax residence, Member States should use automated procedures for the issuance of tax residence certificates for the purposes of applying a relief-at-source system, a comprehensive relief-at-source system, a quick refund system or a standard refund system in order to obtain relief of excess withholding tax on dividends paid for publicly traded shares or on interest paid for publicly traded bonds, if applicable. Moreover, eTRCs should be issued in the same recognisable and acceptable digital form and with the same content.
To allow greater efficiency, the eTRC should cover a maximum period of the calendar year or of the fiscal year, such as a straddle fiscal year or a fiscal year longer than one calendar year, for which it is issued and should remain valid for certifying residence for the period covered. The issuing Member States should be able to completely or partially invalidate an eTRC if the tax authorities have evidence that the taxpayer is not a resident of the issuing Member State for all or part of the period covered. In order to allow for the efficient identification of Union entities, the eTRC should include the tax identification number or, in its absence, i.e. where the Member State concerned does not issue such numbers for its taxpayers, a functional equivalent for tax purposes. In addition, where the issuing authority of the eTRC possesses such data, the eTRC should include the European unique identifier (EUID) or the legal entity identifier (LEI) or any legal entity registration number which is valid for the entire period covered. Moreover, in the case where no tax identification number exists for a natural person, because the Member State of residence does not issue such numbers for its taxpayers, the use of a functional equivalent for tax purposes should also be possible. The identifiers used should be valid for the entire period covered.
The eTRC should contain a reference to the double tax treaty in relation to which a taxpayer requests to be considered resident for tax purposes, where applicable. In order for the eTRC to be recognised by the source Member State as a valid proof of tax residence, where relief of excess withholding tax is claimed under the provisions of a double tax treaty, it is essential that the eTRC include a reference to the applicable double tax treaty. It should be possible for the issuing authority to refer to more than one applicable double tax treaty on a given eTRC. While primarily intended for the implementation of the withholding tax procedures, the eTRC could also have a wider scope of application and serve for proving the residence for tax purposes beyond withholding tax procedures. For the purposes of relief of withholding tax procedures, the eTRC should not include any additional information. The eTRC is intended to be issued only once during the calendar year or once during the fiscal year, even when the same taxpayer invests on multiple occasions in the same source Member States, as long as the taxpayer’s residence for tax purposes remains the same.
To fulfil the objective of more efficient relief of excess withholding tax, common procedures should be implemented across the Union which allow clear and secure information on the identity of the investor to be obtained quickly, especially in the case of large investor bases, that is, in relation to investment in publicly traded securities, where identifying individual investors is challenging. Such procedures should also allow for the application of the appropriate tax rate at the time of payment (relief at source) or for a quick refund of any excess amount of tax paid. Given that cross-border investments usually involve a payment chain of financial intermediaries, relevant procedures should also allow for the tracing and identification of the chain of intermediaries and, consequently, of the income flow from the issuer of the security to the registered owner and information about the underlying investor. The most common types of investment arrangements usually involve a custodian bank or another investment entity, such as a broker, which holds the securities in its name on behalf of the underlying investor. In such arrangements, it is the underlying investor that would be considered to be the registered owner of the securities. Member States that apply withholding tax on income from securities and provide relief for excess withholding tax and do not have a comprehensive relief-at-source system in place, or that have a market capitalisation ratio equal to or above the threshold set out in this Directive, should therefore establish and maintain a national register of those financial intermediaries that have a significant role in the payment chain. Once registered, such financial intermediaries should be required to report information available to them about the dividend or interest payments, if applicable, that they handle. The information required should be limited to information that is crucial to reconstruct the payment chain and therefore useful to prevent the risk of tax fraud or tax abuse, to the extent that such information is available to the reporting intermediary. Member States that apply withholding tax on interest at varying rates and need to engage in similar relief procedures, or that have in place a comprehensive relief-at-source system for dividend payments and have a market capitalisation ratio below the threshold set out in this Directive, could also consider using the established national register, as the case may be.
As the financial intermediaries most often engaged in the securities’ payment chains are large institutions as defined in Regulation (EU) No 575/2013 of the European Parliament and of the Council(3) as well as central securities depositories providing withholding tax agent services, those entities should be obliged to request to be registered with the national registers of Member States. Where such entities operate through a branch or branches or through one or more subsidiaries in any Member State, they should be permitted to fulfil the registration obligation in each source Member State either as one certified financial intermediary at group level or at individual branch or subsidiary level or a combination thereof. Other financial intermediaries should also be allowed to request to be registered with the national registers of Member States at their discretion. In both situations, either under mandatory or voluntary registration, financial intermediaries should have the flexibility to make the request themselves or to be represented by another financial intermediary that is part of the same group and that acts on their behalf in order to minimise the administrative burden and impact on how they wish to be organised. Financial intermediaries should request to be registered by submitting a request through the European Certified Financial Intermediary Portal (the ‘Portal’), that should serve as a single entry point. Such requests should be forwarded through the Portal to the relevant Member States. Subsequently, the Member States should decide on the request for registration. Therefore the Portal should serve as a tool that reflects the decisions of the Member States with regard to the registration of financial intermediaries.
This Directive should also provide for rules on the requirements for registration with national registers as well as rules on refusal thereof. Where a request to register is rejected, financial intermediaries should still be permitted to submit another request for registration at a later stage, if the grounds for rejection have been remedied. Once registered, financial intermediaries should be considered to be ‘certified financial intermediaries’ in the respective Member State and should be subject to the obligations for certified financial intermediaries under this Directive. Member States should update the Portal regarding the registration of a certified financial intermediary. This Directive should also provide for rules on removing certified financial intermediaries from the national register or on denying them the possibility to request relief. Where a Member State decides to remove a certified financial intermediary from the register, denies a certified financial intermediary the possibility to request relief or rejects a registration request, that Member State should update the Portal accordingly. The purpose of such updates is to allow Member States to evaluate the measures taken, such as the removal or the rejection, and to take those measures into consideration in the context of any future registration request by the same financial intermediary in their own national register. The national rules of the Member State concerned apply to the rights and obligations of parties concerned, including the right to appeal, in relation to any decision taken by a Member State in connection with registration and removal from its national register.
To ensure more transparency regarding the identity and the circumstances of the investor receiving a dividend or interest payment and regarding the flow of payments from the issuer, certified financial intermediaries should report relevant information within specific timelines. Two reporting options should be provided for in this Directive: direct and indirect reporting. Where the reporting is direct, a certified financial intermediary should report directly to the competent authority of the source Member State. Where the reporting is indirect, the certified financial intermediaries should provide the information along the securities payment chain in sequential order and in respect of the position of those certified financial intermediaries in the securities payment chain of which they are part. The outcome should be that that information reaches the withholding tax agent or a designated certified financial intermediary, that reports the information to the competent authority of the source Member State. The reported data should include information on the eligibility of the investor concerned, but should be limited to the information that is available to the reporting certified financial intermediary. Financial intermediaries that are not under an obligation to register as certified financial intermediaries and have not opted to register as such, should not have reporting obligations under this Directive. Nevertheless, information on the payments handled by such intermediaries that are not certified financial intermediaries remains relevant for the proper reconstruction of the payment chain before applying the relief systems set out in this Directive.
To ensure there are no information gaps in the payment chain and to enable investors to access the relief procedures, this Directive should allow a certified financial intermediary, whether or not that certified financial intermediary is directly involved in a specific payment chain, to step into the role of a financial intermediary within that chain. This implies that the certified financial intermediary bears the responsibilities and liabilities related to information reporting and to the relief system that the financial intermediary would have borne, had it been a certified financial intermediary. Through that arrangement between financial intermediaries, tax authorities would be able to obtain all relevant information and reconcile information across the entire payment chain in an effective manner, and investors would be able to access the relief system, even in cases involving a financial intermediary that is neither registered in a Member State nor bound by the obligations under this Directive.
This Directive should not prevent certified financial intermediaries from outsourcing tasks related to the fulfilment of their obligations under this Directive. Therefore, a certified financial intermediary should be permitted to rely on a third party to fulfil the relevant obligations regarding withholding tax procedures. In any case, those obligations should remain the responsibility of the certified financial intermediary that has outsourced its responsibilities.
In order to render the CMU more effective and competitive, procedures for the relief of excess withholding taxes on income from securities should be facilitated and accelerated where adequate information has been provided by relevant certified financial intermediaries, including on the identity of the investor. The relevant certified financial intermediaries are all those certified financial intermediaries in the securities payment chain that are situated between the investor and the issuer of the securities and that might be required to provide information on payments effected by non-certified financial intermediaries in the chain. Taking into account the different approaches across Member States, two types of procedures should be provided for: first, a relief-at-source system where the appropriate tax rate is applied directly at the time of withholding and second, a quick refund system where a request for a refund is submitted by the certified financial intermediary and is processed by the tax authority of the source Member State by a set deadline provided for in this Directive. If such refunds are not processed by that deadline, late payment interest should be applied where national rules so provide. Member States that apply chapter III of this Directive should be able to introduce a relief-at-source system or a quick refund system or a combination thereof, ensuring that at least one system is available to all investors, in accordance with the requirements of this Directive. A Member State which has opted for such a combination should be able to limit the use of one system to specific cases, such as low-risk scenarios, provided that the other system remains available for all other cases covered by this Directive. Those receiving payments outside the scope of this Directive, such as dividends from listed companies paid to registered owners that are resident for tax purposes in the source Member State, dividends from non-listed companies or interest in cases where a Member State has not opted to apply this Directive to interest payments, could still be entitled to request relief of excess withholding tax under a national relief-at-source or refund system applicable to the procedures corresponding to such payments.
Where the relevant requirements of this Directive are not met for payments within the scope of this Directive or where the investor concerned so desires, Member States should apply withholding tax relief procedures based on a national standard refund system as a fallback to the fast-track procedures laid down in this Directive. Investors that are entitled to relief or their authorised representatives should be able to reclaim the excess withholding tax paid in a Member State only where the certified financial intermediary has not made use of the relief-at-source system or the quick refund system.
Where there is a risk of tax fraud or tax abuse, Member States should be able to enforce anti-fraud measures and to conduct thorough investigations before processing a request for a quick refund. In order to do so, Member States should have the right to reject a refund request under certain conditions. Those conditions should include cases where the requirements for such a request are not met or where the payment chain cannot be reconstructed. It should also be possible to reject a refund request where a Member State decides to initiate a verification procedure or tax audit based on risk assessment criteria. It should be possible to carry out those verification procedures or tax audits in any case that is identified as posing a risk of tax fraud or tax abuse.
In order to safeguard the systems for the relief of excess withholding taxes, Member States that maintain a national register should also require certified financial intermediaries to verify the eligibility of investors that wish to claim relief. In particular, certified financial intermediaries should collect the tax residence certificate of the relevant investor and a declaration that that investor is entitled to relief of withholding tax under the national rules of the source Member State or a double tax treaty and, if required by the source Member State, a declaration that the investor is the beneficial owner of the dividend or interest in accordance with the national rules of the source Member State or a double tax treaty, as described in the Commentary on Article 10 or Article 11 of the OECD Model Tax Convention on Income and on Capital. Thus, source Member States should have the option to require a declaration on beneficial ownership.
Certified financial intermediaries should be required to verify the applicable withholding tax rate based on the investor’s specific circumstances and to indicate whether they are aware of any financial arrangement involving the underlying securities that has not been settled, expired or otherwise terminated before the ex-dividend date. In that context, the obligation should be understood in the sense that the closest certified financial intermediary to the investor, its client, should take reasonable measures to perform such checks in good faith. For example, certified financial intermediaries should check whether the information in the eTRC or its equivalent, or the information in the investor’s declaration, does not contradict the information collected by those certified financial intermediaries on their clients in their normal course of business. Such information includes the investor’s account information and other information that they might have collected as a result of complying with applicable ‘know-your-customer’ rules. Therefore, certified financial intermediaries should not be required to perform further checks or to request and collect further information from their customer. Additionally, the investor should be required to inform the financial intermediary of any changes in its relevant circumstances. Member States should be permitted to allow due diligence requirements to be carried out on an annual basis unless the certified financial intermediary knows or ought to know that there has been a change of circumstances or that the information is incorrect or unreliable.
The application of the withholding tax relief procedures under this Directive is subject to the condition that the registered owner, which is either a natural person or an entity and is eligible to receive the dividend or interest as the holder of the securities, is also the person that is entitled to relief of withholding tax in accordance with the national rules of the source Member State or a double tax treaty, as applicable. Where the registered owner is also entitled to the relief, only the provisions for direct investments should apply. However, in situations where the registered owner and the person entitled to relief are not the same, the provisions for indirect investments should apply. The provisions for indirect investment provide relief in cases where certain collective investment undertakings (CIU), or the investors therein, could be entitled to relief but are not the registered owner because the securities are held by a different legal person or by a fiscally transparent CIU. The provisions for indirect investments ensure that legitimate investors have access to the procedures under this Directive. Therefore, in the interpretation of the concept of CIU, Member States should include CIUs which are entitled to relief of excess withholding tax on their own behalf as well as CIUs where the investors holding equity in a CIU are entitled to relief, based on the national rules of the source Member State or on a double tax treaty. When involved in indirect investments, the certified financial intermediary should still be under an obligation to fulfil the due diligence requirements. Furthermore, it should be possible for the certified financial intermediary to be held liable if there is any loss of tax revenue.
It is acknowledged that financial arrangements can be used to shift the ownership, in whole or in part, of a security or relevant investment risks. It is also the case that such arrangements have been used in dividend arbitrage and dividend stripping schemes, such as the Cum/Ex and Cum/Cum schemes, with the sole purpose to obtain refunds in cases where there was no entitlement thereto or to increase the amount of refund to which an investor was entitled. It should be possible to consider arrangements such as futures contracts, repurchase transactions, securities lending and securities borrowing, buy-sell back transactions or sell-buy back transactions, derivatives, margin lending transactions and contracts for difference as financial arrangements in cases where they imply a temporary or permanent split between the natural person or entity bearing the economic risks of the investment and the legal owner of the share or underlying rights. Those examples are not exhaustive.
Furthermore, in the case of financial arrangements, it is understood that the ownership of the securities is not transferred to the buyer or borrower if the economic risk remains with the seller or lender of the securities through any legal transactions such as securities lending, options or futures contracts. It should be possible for any arrangement under which dividends are compensated between the parties concerned to be considered as a financial arrangement. The parties concerned are not always compensated in cash, but can also be compensated in more indirect ways, such as through differences in price of securities or derivatives. Information on financial arrangements is necessary for tax authorities to fight tax fraud and tax abuse. When such information is reported directly, it should only be required from certified financial intermediaries that, due to their position within the chain, might have been directly engaged in the relevant financial arrangement, which will be the case for the certified financial intermediaries that request relief. When such information is reported indirectly, the information on financial arrangements should be reported by the certified financial intermediary of the registered owner. In such cases, the information should be reported along the security payment chain in sequential order with the effect that it ultimately reaches the withholding tax agent or a designated certified financial intermediary. That means that other reporting certified financial intermediaries need to transmit the information on those financial arrangements to the withholding tax agent or a designated certified financial intermediary, even if those reporting certified financial intermediaries are not directly engaged in the relevant financial arrangement. Reporting on financial arrangements should not be required in the case of bonds and interest payments.
Member States should be able to restrict the use of the relief-at-source system or the quick refund system in cases that present an elevated risk of tax fraud or tax abuse. Therefore it is appropriate to establish a list of such cases, where Member States have the possibility to exclude requests for relief and conduct further checks. In order to take into account the differences in national legal systems and, in particular, tax risk assessments, the establishment of such a list should not be mandatory and Member States should have discretion to determine which of such cases should be covered by the standard refund system. Member States should ensure that national rules transposing this Directive do not allow cases that Member States consider to present an elevated risk to benefit from relief at source or a quick refund. Such measures would ensure that tax authorities are better placed to combat abusive schemes, as they would have the possibility of conducting further checks to determine whether requests for relief are justified and are to be granted. One such measure consists of a threshold that is related to a gross dividend amount. That threshold should be calculated per registered owner or per investor entitled to relief of excess withholding tax if the registered owner is a collective investment undertaking or a designated legal person of such an undertaking. That threshold should not apply in cases where a collective investment undertaking established and regulated, or having a manager established and regulated, in the Union, a statutory pension scheme of a Member State or an institution for occupational retirement provision registered or authorised in a Member State in accordance with Article 9(1) of Directive (EU) 2016/2341 of the European Parliament and of the Council(4) is entitled to relief. Those undertakings, schemes and institutions are highly regulated and subject to supervision by the national competent authorities and to robust internal controls. Such regulation and supervision enforce compliance with the relevant regulations and minimise the risk of tax fraud and tax abuse.
Nevertheless, there are cases where taxpayers could claim the reduced withholding tax rate based on Union legal acts implemented by national rules. This would typically be the case where national rules ensure that freedom of establishment or free movement of capital is equally granted in domestic and non-domestic comparable situations, or in the case where a directive is transposed. Such cases can require verifications to be carried out, especially to assess the comparability of situations and the applicability of national law to cross-border cases. Where such verifications are required, it should be possible for Member States to deal with those cases under their existing national relief-at-source systems, thus leading to relief of excess withholding tax in the fastest and safest manner.
Considering the important role of certified financial intermediaries in reporting complete and correct information, which serves as the basis for withholding tax relief or a refund, it is appropriate that the national rules of Member States contain at least rules under which certified financial intermediaries can be held liable for the full or partial loss of withholding tax revenue incurred due to their full or partial non-compliance with the key obligations of this Directive. It should be possible for Member States to establish in their national rules strict and joint and several liability for certified financial intermediaries requesting relief. Additionally, other aspects of liability should continue to be fully regulated by the national rules of Member States. Those other aspects include withholding tax agents that act jointly or severally and that are not acting as certified financial intermediaries, and instances related to either direct or indirect liability of registered owners and investors that submit incomplete or incorrect information to certified financial intermediaries. This Directive does not determine the rules on liability regarding the standard refund system.
In order to ensure the effectiveness of the applicable rules, Member States should lay down rules on penalties applicable to infringements of national provisions adopted pursuant to this Directive. Such penalties should be effective, proportionate and dissuasive.
The proper transposition of this Directive in each Member State concerned is critical for the promotion of the CMU as a whole, as well as for the protection of the tax revenue of the Member States. Member States should therefore communicate to the Commission, on a regular basis, statistical information on the implementation and enforcement in their territory of national measures adopted pursuant to this Directive. The Commission should prepare an evaluation on the basis of the information provided by Member States and other available data to evaluate the effectiveness of the applicable rules. In that context, the Commission should consider the need to update the rules introduced by this Directive.
In order to ensure uniform conditions for the implementation of this Directive, in particular for the digital tax residence certificate, the Portal, the reporting of financial intermediaries, the declaration of the registered owner and the request for relief under this Directive, implementing powers should be conferred on the Commission to adopt standard forms with a limited number of components, including the linguistic arrangements. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council(5).
Any processing of personal data carried out within the framework of this Directive should comply with Regulation (EU) 2016/679 of the European Parliament and of the Council(6). The data processing operations provided for under this Directive have the objective of serving a general public interest, namely the matter of taxation, and the additional objectives of combating tax fraud, tax evasion and tax avoidance, safeguarding tax revenue and promoting fair taxation, which strengthen opportunities for social, political and economic inclusion in Member States. Therefore, for the purposes of the correct application of this Directive and in order to safeguard those objectives of general public interest, Member States should have the possibility to restrict the scope of certain data subjects’ rights set out in Regulation (EU) 2016/679. Nevertheless, such restrictions should not go beyond what is strictly necessary for the achievement of those objectives. In relation to the additional information that could be required pursuant to this Directive for proving the taxpayer’s residence for tax purposes, collection of such information related to a natural person should be understood as being restricted to the identification of the natural person.
Since the objective of this Directive cannot be sufficiently achieved by the Member States but can rather, by reason of the cross-border nature of the transactions concerned and the need to reduce compliance costs in the internal market as a whole, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality as set out in that Article, this Directive does not go beyond what is necessary in order to achieve that objective.
The European Data Protection Supervisor was consulted in accordance with Article 42(1) of Regulation (EU) 2018/1725 of the European Parliament and of the Council(7) and delivered an opinion on 8 August 2023,
HAS ADOPTED THIS DIRECTIVE:
This Directive lays down rules on:
the issuance of a digital tax residence certificate by Member States; and
the procedure to relieve any excess withholding tax that can be levied by a Member State on dividends from publicly traded shares and, where applicable, on interest from publicly traded bonds paid to registered owners that are resident for tax purposes outside that Member State.
Chapters I and IV shall apply to all Member States. Chapter II shall apply to all Member States with regard to all natural persons and entities that are resident for tax purposes in their jurisdiction.
Chapter III shall become applicable to all Member States that provide relief of excess withholding tax on dividends paid for publicly traded shares issued by an entity that is resident for tax purposes in their jurisdiction if:
they do not have a comprehensive relief-at-source system applicable to such excess withholding tax; or
their market capitalisation ratio, as set out in the four latest publications by the European Securities and Markets Authority (‘ESMA’) available on 31 December 2028, is equal to or more than 1,5 % for each of the four consecutive years.
A Member State that has a comprehensive relief-at-source system applicable to the excess withholding tax on dividends paid for publicly traded shares issued by a resident in its jurisdiction may opt to apply Chapter III if its market capitalisation ratio, as set out in the four latest publications by ESMA available on 31 December 2028, is less than 1,5 % for at least one of the four consecutive years.
A Member State shall apply Chapter III within five years from the fourth consecutive publication of data by ESMA that indicates that the market capitalisation ratio of that Member State reached or exceeded 1,5 % during each of the four consecutive years.
A Member State that provides relief of excess withholding tax on interest paid for publicly traded bonds issued by a resident in its jurisdiction may apply Chapter III.
Once Chapter III becomes applicable to any Member State pursuant to paragraph 2 or 4 of this Article, it shall remain applicable to that Member State, irrespective of whether the conditions that triggered its application continue to be met or not.
Where a Member State opts to apply Chapter III pursuant to paragraph 3 of this Article, the exercise of that option shall be irrevocable.
For the purposes of this Directive, the following definitions apply:
‘excess withholding tax’ means the difference between the amount of withholding tax levied by a Member State on payments to non-resident owners of dividends or interest from securities by applying the general domestic rate and the lower amount of withholding tax applicable by that Member State on the same dividends or interest in accordance with a double tax treaty or specific national rules, as the case may be;
‘publicly traded share’ means a share admitted to trading on a regulated market or traded on a multilateral trading facility;
‘publicly traded bond’ means a bond admitted to trading on a regulated market, or traded on a multilateral trading facility or on an organised trading facility;
‘financial intermediary’ means any of the following which is part of the securities payment chain between the entity issuing securities and the registered owner receiving payments on such securities:
a central securities depository as defined in Article 2(1) of Regulation (EU) No 909/2014 of the European Parliament and of the Council(8);
a credit institution as defined in Article 4(1), point (1), of Regulation (EU) No 575/2013;
an investment firm;
a branch of any of the entities under points (a), (b) or (c); or
a third-country legal person that has been authorised under comparable legislation of a third country of residence to provide services comparable to those provided by any of the entities under points (a), (b) or (c), or a branch of such a third-country legal person;
‘certified financial intermediary’ means a financial intermediary that is registered with a national register as referred to in Article 5;
‘entity’ means a legal person or a legal arrangement, including but not limited to a corporation, partnership, trust or foundation;
‘collective investment undertaking’ means a UCITS, an EU AIF or an alternative investment fund managed by an EU AIFM, or any other collective investment vehicle that, based on the national rules of the source Member State or on a double tax treaty, is entitled to relief of excess withholding tax, or a collective investment vehicle of which the underlying investors are entitled to such relief that can be requested on their behalf, except such collective investment vehicles that are, or whose manager or depositary is, established in a third country listed in Annex I to the Council conclusions on the revised EU list of non-cooperative jurisdictions for tax purposes or in Table I of the Annex to Commission Delegated Regulation (EU) 2016/1675(9);
‘institution for occupational retirement provision’ means an institution for occupational retirement provision as defined in Article 6(1) of Directive (EU) 2016/2341;
‘EUID’ means the European unique identifier as referred to in Article 16 of Directive (EU) 2017/1132 of the European Parliament and of the Council(10);
‘tax identification number’ or ‘TIN’ means the unique identifier for tax purposes of a registered owner in a Member State;
‘withholding tax relief procedure’ means a procedure whereby a registered owner receiving dividends or interest from securities that can be subject to excess withholding tax is relieved of, or receives a refund for, such excess withholding tax;
‘competent authority’ means the authority which has been designated by a Member State in accordance with Article 5 and includes any person authorised in accordance with national rules by such an authority to act on its behalf for the purposes of this Directive;
‘security’ means a publicly traded share or a publicly traded bond;
‘depositary receipts’ means financial instruments which are negotiable on the capital market of a Member State or a third country and which represent ownership of the securities of an issuer within the Union while being traded on a trading venue in a Member State or a third country and traded independently of the securities of the issuer;
‘large institution’ means a large institution as defined in Article 4(1), point (146), of Regulation (EU) No 575/2013;
‘group’ means a group as defined in Article 2(12) of Directive (EU) 2002/87/EC of the European Parliament and of the Council(11);
‘withholding tax agent’ means an entity that has the responsibility under or has been authorised in accordance with the national rules of the source Member State to deduct the withholding tax from the payment of dividends or interest from securities and to transfer such withholding tax to the tax authority of the source Member State;
‘record date’ means the date set by the issuer of a security on which the identity of the holder of that security and the rights derived therefrom shall be determined, based on the settled positions struck in the books of the financial intermediary by book-entry at the close of business;
‘settlement’ means the completion of a securities transaction where it is concluded with the aim of discharging the obligation of the parties to that transaction through the transfer of cash or securities or both, as defined in Article 2(1), point (7), of Regulation (EU) No 909/2014;
‘registered owner’ means any natural person or entity that is entitled to receive dividends or interest from securities subject to tax withheld at source in a Member State as the holder of the securities on the record date, without prejudice to the adjustments to transactions pending settlement that could be made in accordance with the national rules of the source Member State, and that is not a financial intermediary acting for the account of others with respect to those dividends or interest;
‘investment account’ means the account or accounts provided by financial intermediaries to registered owners via which their securities are held or registered;
‘cash account’ means the account or accounts to which the payments related to the securities held or registered in the investment account are made;
‘ex-dividend date’ means the date from which the shares are traded without the rights derived from the shares, including the right to participate and vote in a general meeting, where relevant;
‘payment date’ means the date on which the payment of the dividend of a publicly traded share or the interest of a publicly traded bond is due to the registered owner;
‘financial arrangement’ means any arrangement or series of arrangements, or any contractual obligation, whereby:
any part of the ownership of the publicly traded share on which a dividend is paid is, or could be, either permanently or temporarily transferred to a related or independent party; or
the dividend is fully or partly compensated between related or independent parties, in cash or in any other form;
‘securities payment chain’ means the sequence of financial intermediaries that handle the payment of dividends or interest on securities between the securities’ issuer and a registered owner to which dividends or interest from such securities are paid, and includes brokers that are investment firms authorised under Directive 2014/65/EU of the European Parliament and of the Council(12) or that are credit institutions authorised under Directive 2013/36/EU of the European Parliament and of the Council(13), when providing one or more investment services or performing investment activities, as well as third-country legal persons authorised under comparable rules of a third country of residence when providing investment services or performing investment activities;
‘double tax treaty’ means an agreement or convention that applies between two or more jurisdictions and provides for the elimination of double taxation of income and where applicable, of capital;
‘source Member State’ means the Member State of residence of the issuer of the security paying dividends or interest;
‘quick refund system’ means a system whereby a payment of dividends or interest is made by taking into account the general domestic withholding tax rate followed by a request for a refund of the excess withholding tax within the timeframe set in Article 14;
‘relief-at-source system’ means a system whereby the appropriate withholding tax rate, in accordance with the applicable national rules or international agreements, such as the relevant double tax treaty, is applied at the moment of payment of dividends or interest;
‘comprehensive relief-at-source system’ means a relief-at-source system that is applied by a Member State and meets all of the following conditions:
it provides access to relief to any natural person or entity that is entitled to relief in accordance with the national rules of the source Member State or a double tax treaty, as applicable;
it provides relief to any natural person or entity under point (a) on the payment date, except in the case of a failure to report the information required by the Member State that applies such relief;
except in the circumstances as set out in Article 11(2), the Member State does not exclude requests for relief;
except in the circumstances as set out in Article 11(2), the Member State neither requires additional information from, nor imposes additional obligations on the natural person or entity entitled to relief, or on the financial intermediary other than the withholding tax agent, other than requiring the information and obligations provided for in Articles 12, 13, and 15, as applicable;
the Member State has laid down rules on liability for all or part of the loss of withholding tax revenue incurred by that Member State as a result of applying that relief-at-source system; and
the Member State has laid down rules on effective, proportionate and dissuasive penalties applicable to infringements of national provisions on that relief-at-source system;
‘market capitalisation’ means the total value of the publicly traded shares of companies whose shares are admitted to trading on a regulated market or on a multilateral trading facility, represented in a Member State as published on an annual basis by ESMA;
‘market capitalisation ratio’ means the ratio expressed as a percentage of the market capitalisation of a Member State on 31 December to the overall market capitalisation of the Union on 31 December, in a given year;
‘standard refund system’ means a system whereby a payment of dividends or interest is made taking into account the general domestic withholding tax rate followed by a request for a refund of the excess withholding tax not falling under the procedure set out in Article 14;
‘investment firm’ means an investment firm as defined in Article 4(1), point (1), of Directive 2014/65/EU;
‘UCITS’ means a UCITS as defined in Article 1(2) of Directive 2009/65/EC of the European Parliament and of the Council(14);
‘EU AIF’ means an EU AIF as defined in Article 4(1), point (k), of Directive 2011/61/EU of the European Parliament and of the Council(15);
‘EU AIFM’ means an EU AIFM as defined in Article 4(1), point (l), of Directive 2011/61/EU.
For the purposes of paragraph 1, points (2) and (3), of this Article, ‘regulated market’, ‘multilateral trading facility’ and ‘organised trading facility’ mean a regulated market, a multilateral trading facility and an organised trading facility as defined in Article 4(1), points (21), (22) and (23), of Directive 2014/65/EU, respectively.
For the purposes of paragraph 1, point (20), source Member States may consider, in accordance with their national rules, the holder of depositary receipts as the registered owner, instead of the holder of the underlying securities, as if the holder of depositary receipts had directly invested in those securities.