In a measure that promises to transform the tax landscape of cross-border investment, the European Union has taken a significant step to streamline tax refunds and combat tax fraud related to dividends. The ministers of Economy and Finance of the EU have approved new regulations aimed at eliminating bureaucratic obstacles and combating dividend tax fraud, seeking to avoid cases such as the cumex and cum-cum scandals.
Digitalization and Accelerated Procedure
The recently approved regulation proposes the digitalization of the tax refund process and the introduction of an accelerated procedure for the refund of taxes on dividends in cases of double taxation. According to European Commission estimates, this measure will save investors about 5,170 million euros per year. The objective is to make tax withholding in the EU more secure, efficient and simplified, benefiting both investors and national tax authorities and financial intermediaries, such as banks.
Digital Certificate of Tax Residency
One of the key points of the new regulation is the introduction of a digital certificate of tax residence at European level. This certificate will allow investors to apply streamlined procedures for tax refunds, making the process faster and more efficient. EU countries should provide an automatic procedure for issuing these certificates to residents or entities, thus simplifying the procedure for investors with diversified portfolios in different EU countries.
Relief and Fast Refund Options
Member States may choose between applying a relief at source, at the time when the payment of dividends or interest is applied, or else to implement a system of rapid reimbursement of excess withholding within a specified period. This flexibility will allow countries to adapt the procedure to their specific needs, although they must adopt the regulations on a mandatory basis if their market capitalization ratio exceeds the 1.5% threshold for four consecutive years.
Obligations for Financial Intermediaries
The regulations also impose new obligations on financial intermediaries, such as banks and investment platforms, who must submit detailed reports to help national authorities detect potential fraud or tax abuses. In addition, national registries will be established in which large intermediaries must register to be certified.
Next Steps and Implementation Timeline
The text of the regulation now requires a final consultation with the European Parliament for formal support, after which it will be published in the official journal of the EU. It is expected to formally enter into force in 2030, although member countries will have until 2028 to adapt the standard to their national legislation.
Combating Tax Fraud: Cum-ex and Cum-cum
The regulations also seek to eradicate tax evasion practices such as cum-ex and cum-cum schemes. The cum-ex scheme involves claiming unpaid tax refunds through the sale and repurchase of shares around dividend payment dates. The cum-cum scheme, on the other hand, exploits differences in taxation between domestic and foreign investors by temporarily transferring shares to claim undue tax credits.
This new regulation represents a determined effort on the part of the EU to create a fairer and more transparent tax environment, protecting both investors and national economies from abusive and fraudulent practices.
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