Background
On 14 May 2024, the EU Council agreed on the FASTER Directive (Faster and Safer Tax Relief of Excess Withholding Taxes), a measure designed to simplify and accelerate withholding tax refunds within the European Union. The directive introduces digitised and modern procedures, which will alleviate administrative burdens on investors and tax authorities alike.
Why Was the FASTER Directive Introduced?
Many EU countries impose withholding taxes on dividends and interest paid to non-resident investors. While double tax treaties allow for reduced rates or exemptions, the process of reclaiming excess tax has traditionally been complex and inefficient. The challenges include dealing with over 450 different forms across EU member states, which create significant administrative hurdles. Additionally, paper-based processes contribute to delays and lost claims.
Furthermore, tax fraud schemes such as Cum/Ex and Cum/Cum have led to estimated losses of €150 billion between 2000 and 2020, highlighting the need for stronger oversight. In response, the FASTER Directive aims to address these inefficiencies by automating and harmonizing tax reclaim procedures. This initiative is set to benefit investors, financial institutions, and tax authorities alike.
Key Features of the FASTER Directive
1. Digital Tax Residence Certificate (eTRC)
A major element of the directive is the introduction of an automated eTRC, which will:
- Be issued within 14 days of a request.
- Cover the entire calendar year.
- Be recognized across all EU member states.
This eliminates the need for extensive paperwork and promotes a simplified method for digital verification of tax residency.
2. Fast-Track Procedures for Refunds
The directive mandates that EU member states adopt one or both of the following procedures:
- Relief at Source: Applying the appropriate withholding tax rate at the time of dividend payment.
- Quick Refund System: Providing refunds within 90 days if excess tax is withheld.
These measures are expected to generate savings exceeding €5 billion per year for cross-border investors.
3. Standardized Reporting & Financial Intermediaries
To enhance transparency and prevent tax fraud, the directive requires:
- A national register of Certified Financial Intermediaries (CFIs) to manage tax relief claims.
- Mandatory due diligence for CFIs to verify investor eligibility.
- Automated reporting obligations to national tax authorities.
While these requirements will strengthen compliance, investors must work with registered intermediaries(like Global Tax Recovery) to benefit from the new fast-track procedures.
Implications for Investors
The FASTER Directive presents several advantages for international investors:
- Faster processing times: Digitalization and automation will significantly reduce refund wait times.
- Increased transparency: Standardized reporting ensures a clear and traceable process.
- Improved market access: Easier reclaim procedures encourage more cross-border investments.
However, some challenges remain:
- Higher compliance costs: Banks and financial intermediaries must invest in new technologies to meet the directive’s requirements.
Potential delays in adaptation: Some member states may struggle with timely implementation, causing discrepancies in enforcement and investor uncertainty.
Final Thoughts: Preparing for FASTER
The FASTER Directive is a significant step toward making withholding tax refunds more efficient and investor-friendly. Although full implementation is set for 2030, investors should begin preparing now to take advantage of the changes.
We are fully prepared to leverage the innovations of the FASTER Directive to streamline and enhance the withholding tax refund process. Our advanced systems and established expertise align with the directive’s digital innovations, which ensure faster, more secure, and efficient tax recovery for our clients.
Contact Global Tax Recovery to learn more about how we can help you take full advantage of the FASTER Directive.