The European Commission plans to introduce a standardised system of withholding tax relief on January 01, 2027, if unanimously adopted by all EU countries.
To this end, the European Commission published a proposal in June to strengthen relief at source and quick refund procedures. The proposal aims to make it easier for investors and financial intermediaries to obtain relief from double taxation in the future. To improve the efficiency of the application process, there will be a common digital EU tax residence certificate for investors and standardised reporting requirements for financial intermediaries.
In addition to the existing standard refund procedure, two quick refunds will be established to speed up and streamline the relief process. Member states would then have the choice to apply either a relief at source or a quick refund process – or a combination of both. This would indeed be a huge improvement.
Let’s first take a closer look at another important initiative: the introduction of a common digital tax residence certificate (eTRC) and common reporting. The introduction of a common digital residency certificate in the EU is designed to speed up and streamline withholding tax relief procedures. For example, investors holding a diversified portfolio within the EU will only need ONE digital tax residency certificate to apply for multiple refunds within a calendar year. This certificate is expected to be issued within one business day of submitting a claim, replacing the paper-based procedures currently used in most member states.
Why could this be a challenge? Firstly, many European countries, e.g. Germany, have already introduced a decentralised procedure for residence certificates. Secondly, this proposal conflicts with the OECD’s TRACE-IP model, which has already been implemented in Finland, as well as the U.S. QI system, where investors can self-certify their tax status.
These discrepancies raise issues because it would require either a centralised digital tax residency certification system or the development of 27 bilateral systems by each member state within four years. It is worth noting that directives must be adopted unanimously to enter into force. We look forward to seeing where developments in this area will be headed and will keep you informed.