Key measures
The FASTER Directive would entail:
- the creation of a common EU digital tax residence certificate,
- the establishment of national registers for so-called “certified financial intermediaries”,
- a standardised reporting obligation for such certified financial intermediaries, and
- the obligation for Member States to set up a relief at source system or quick refund system (or a combination of both) to provide for relief from withholding tax ("WHT").
Proposed withholding systems for WHT relief
Relief at source and quick refund
Member States would be required to introduce at least one of the following two systems:
- a relief at source system resulting in withholding the correct amount of WHT at the time of the dividend or interest payment; and
- a quick refund system resulting in the refund of WHT within a set time frame of maximum 25 days from the date of the request or from the date when the required reporting is fulfilled, whichever the latest. This should take place within fifty calendar days from payment date.
Member States could combine both, for instance, only allowing low risk taxpayers to request for the relief at source system whilst high(er) risk taxpayers could only apply for the quick refund system.
Anti-abuse measures
Member States shall not apply the relief at source system or a quick refund system in two specific situations:
- the dividend has been paid on a publicly traded share which has changed ownership within a period of two days before the ex-dividend date, or
- the dividend payment on the underlying security for which relief is requested is linked to a financial arrangement that has not been settled, expired or otherwise terminated at the ex-dividend date.
These measures aim to prevent WHT abuse, focusing on Cum/Ex or Cum/Cum schemes. The definition of a financial arrangement used in the FASTER Directive, however, is intentionally broad in order to comprise other types of arrangements. Examples of financial arrangements given are, inter alia, repurchase agreements, securities lending and single stock futures.
In case both the relief at source and quick refund systems do not apply, e.g. in the case of potential dividend stripping, the regular refund procedure would still be available, where the taxpayer or an appointed representative are able to directly request for a refund to the tax administration.
Certified Financial Intermediaries
Registration in National Registers
In order to benefit from the WHT relief procedures embedded in the FASTER Directive, investors would need to engage with certified financial intermediaries ("CFIs") who could assist with the WHT relief procedures provided for in this directive. The CFIs would be required to register in the national registers of the Member States in which their clients hold investments and would have reporting obligations to the relevant national competent authorities. Member States that do not provide relief of excess WHT in respect of dividends would not be required to have a national register in place. Non-compliant CFIs would be subject to removal from the national register(s) and/or penalties.
Large institutions as defined in the Capital Requirements Regulation and central securities depositaries as defined in the FASTER Directive would qualify as CFIs on a compulsory basis. All other entities (including those established in a third country jurisdiction) acting as financial intermediaries and meeting certain requirements could, on a voluntary basis, register in the relevant national registers.
Reporting obligations
A common set of reporting elements is included in Annex II of the FASTER Directive. The information provided by the CFI to the competent authority would allow to determine the identity of the ultimate investor, the entitlement to the reduced WHT rate, if applicable, and whether there are potential abusive WHT schemes in place. Generally, reporting should take place as soon as possible after the record date or, if applicable, the settlement date.
Common EU digital tax residence certificate
With respect to the tax residency of EU investors to be reported by the CFIs, the FASTER Directive introduces the obligation for Member States to provide for a digital tax residence certificate (“eTRC”) identifying the requesting EU taxpayer and confirming that the investor is tax resident in the relevant Member State according to its national rules. EU-based investors holding a diversified EU portfolio would only need one eTRC within the EU. This standardised eTRC could be used for WHT purposes and also for other purposes. Such eTRC would in principle be valid for at least the full calendar year in which it is requested. The eTRC would be accessible for taxpayers and CFIs on behalf of their clients.
Next steps
The Council of the EU Member States will discuss the proposal, which requires unanimity for adoption. Once the Council has formally adopted the FASTER Directive, Member States would have until 31 December 2026 to transpose the FASTER Directive in their national legislation.
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