In an effort to simplify and make the tax refund process for cross-border investors more secure, the European Union's finance ministers have reached a crucial agreement. This agreement, reached in May 2024, aims to expedite tax refunds and improve withholding procedures for investors, financial intermediaries and tax administrations. In addition, it seeks to prevent double withholding and combat tax abuses.
Account Withholding and Double Taxation
Account holds are a common problem for cross-border investors in the EU. These apply, for example, when an investor resident in a member state must pay taxes on interest or dividends earned in another EU country. To avoid this double taxation, many member states have signed tax treaties that prevent the same person or company from paying taxes twice and allow investors to request a refund of overpaid taxes.
However, as the EU itself has pointed out, these procedures are often “lengthy and costly”, discouraging cross-border investment. The economic vice-president of the European Commission, Valdis Dombrovskis, emphasized that this agreement represents a significant step forward in the search for fair taxation and stressed that “the new rules will ensure that cross-border investors do not pay excessive taxes on dividend and interest payments.”
New Rules and Combating Tax Evasion
The new rules include provisions to combat tax avoidance and reduce the loss of tax revenues resulting from non-compliance with withholding rules. This agreement is an essential component in the architecture of the EU's capital markets union.
Two Fast Track Systems
The European directive offers two fast track systems for member states:
- Source Relief: It allows for the exemption of withholding at the time of payment of dividends or interest.
- Quick Return System: It provides a quick refund of excess withheld taxes.
Although these fast track systems will be available to everyone, Member States can choose to keep their current procedures if they provide adequate relief for withholding taxes on interest on publicly traded bonds or if their market capitalization ratio is below 1.5%. However, if the index exceeds this threshold for four consecutive years, the rules of the directive will be mandatory and member states will have five years to incorporate them into their national legislation.
In addition, member states can completely or partially exclude requests for tax relief from expedited procedures to carry out additional controls and prevent fraud.
At Dividend Refund, we're ready to help you navigate these new procedures and maximize your returns. With recent EU regulations, requesting a double tax refund will be easier and more efficient. Our specialized team processes quick returns and reliefs at source, ensuring that you get the refunds you're entitled to without the administrative burden.
Trust Dividend Refund to simplify your tax experience and optimize your cross-border investments. Contact us today and find out how we can help you recover excess retention quickly and safely.
