The debate on withholding tax is now practical, not theoretical. Cross-border dividend tax and interest flows sit at the centre of reforms led by the OECD and the EU. Both bodies are pushing for unified models that aim to cut friction while tightening compliance. The challenge for investors, funds and custodians is direct: is OECD-led WHT harmonisation a tollbooth that slows capital, or a gateway that improves dividend tax relief?
What the OECD is really harmonising
The OECD does not make laws. Instead, it builds frameworks that governments can adopt. Two key pillars drive its withholding tax policy. First, the OECD Model Tax Convention shapes how states share taxing rights on dividends, interest and royalties. Second, the TRACE framework (Treaty Relief and Compliance Enhancement) offers a standardised relief-at-source model. TRACE uses Authorised Intermediaries and investor self-declarations, backed by clear reporting and automatic data exchange. Together, they create a foundation for consistent dividend tax treatment.
Dividend tax rules under the OECD Model
Article 10 of the OECD Model sets the default for dividend tax. It allows the source country to levy tax but limits the rate under treaty rules. The standard cap is often 5 per cent for large corporate holdings and 15 per cent for other investors. These rates anchor expectations in dividend planning, WHT reclaims and relief at source. The Model also ties treaty benefits to the concept of “beneficial ownership”. That connection ensures entitlement depends on economic substance, not empty form.
TRACE and the Authorised Intermediary approach
TRACE offers a path to easier relief. It lets intermediaries apply reduced WHT rates at payment by relying on standard investor declarations. Investors no longer need to push residence certificates through the custody chain. In return, intermediaries must report investor data and share it with tax authorities. The balance is clear: smoother dividend tax relief at the front, stronger transparency behind the scenes.
Finland as a live test
Finland moved first. Since 2021, it has run a TRACE-style system for dividends on listed shares. The regime registers Authorised Intermediaries, accepts investor self-declarations and enforces enhanced reporting. The Finnish Tax Administration sets clear duties and liabilities for participants. The EU has flagged Finland as a working model. The message is simple: relief at source works if documentation and data standards are firm.
The EU FASTER Directive
The EU has now gone further with FASTER. The Directive introduces an EU-wide digital tax residence certificate. It forces Member States to offer either relief at source or fast refund procedures for dividends on listed shares. It also requires standard reporting by certified intermediaries. Member States must adopt it by the end of 2028, with rules applying from 2030. This reform is the sharpest shift yet in Europe’s dividend tax landscape.
Anti-abuse controls: the BEPS overlay
Harmonisation does not mean soft rules. The OECD’s BEPS project, especially Action 6, added a Principal Purpose Test. Tax authorities can now deny WHT relief if one purpose of an arrangement was to gain treaty benefits. As a result, investors must show real commercial purpose and control over income. Clean evidence of ownership and substance is no longer optional.
Why harmonisation feels like a tollbooth
Compliance comes with a price. TRACE puts liability on Authorised Intermediaries, who must align KYC checks and accept risk for under-withholding. FASTER adds certification, due diligence and reporting duties for intermediaries in the custody chain. Global custodians face system overhauls, new controls and re-drafted contracts. For many, these are heavy front-end costs that cannot be avoided.
Why harmonisation is also a gateway
The upside is clear. If markets adopt relief at source and fast refunds, dividend tax drag shrinks. Paper claims and long refund cycles fade. TRACE replaces certificates with self-declarations, and FASTER provides digital proof of residence. Both aim to speed payments, cut errors and strengthen audit trails. Investors gain faster cash flow. Authorities gain cleaner visibility. Everyone gains predictability.
Operational impact on investors
Funds and institutions cannot treat this as back-office detail. Treaty-grade data must be collected and validated. Beneficial ownership, residency and investor status must all be clear. Custodial chains need mapping, with defined roles for intermediaries and risk bearers. Documentation must shift to standard declarations with automated renewals. The choice is simple: build these systems now or risk blocked relief later.
Risk management under new rules
Policy harmonisation will not protect weak claims. Thin structures and poor records will still fail the PPT test. Investors must align portfolio structures, legal ownership and tax documentation. Relief at source will only flow if entitlement is robust. Even fast refunds require a strong evidence trail and timely reporting. Institutions should tighten internal service levels, update counterparty contracts and prepare for audits before 2029.
Conclusion
OECD-driven WHT harmonisation is both a barrier and an enabler. It raises the bar with stricter data, reporting and liability. Yet it also opens a gateway to faster, cleaner dividend tax relief. The winners will be investors and intermediaries who treat TRACE and FASTER as infrastructure, not overhead. The laggards will face denied claims, cash leakage and rising costs.
At Global Tax Recovery, we help investors and intermediaries adapt to these shifts. Our team can align your data, review your entitlement, and prepare your custody agreements for TRACE and FASTER. If you want relief at source to translate into real cash, not delayed refunds, now is the time to act.
