New tax guidelines for cross-border investors

The new Code of Conduct offers solutions for investors who, as a result of how withholding taxes are applied, end up paying taxes twice on the income they receive from cross-border investments. A withholding tax is a tax withheld at source in the EU country where investment income such as dividends, interests, and royalties is generated. These levies provide a way for the Member States to ensure that taxes are being applied appropriately on cross-border transactions. Since the income is often taxed again in the Member State where the investor is resident, problems of double taxation can result. Investors do have the right to claim a refund when double taxation occurs but refund procedures are currently difficult, expensive, and time-consuming. These recommendations, developed alongside national experts, form part of the EU’s Capital Markets Union Action Plan and should improve the system for investors and the Member States alike. In particular, the Code of Conduct aims to reduce the challenges faced by smaller investors when doing business cross-border. It should result in quick, simplified, and standardised procedures for refunding withholding taxes where appropriate.

Implementation of the Code of Conduct is voluntary for the Member States. It provides a snapshot of the problems faced by cross-border investors and explains how more efficient tax procedures can be put in place. The Code outlines a range of practical ways for Member States to address key issues including:

• Measures to help smaller investors for whom the rules on the refund of withholding tax are overly complex;
• The creation of user-friendly digital forms to apply for withholding tax relief in the case of overpayment;
• A reliable and effective timeframe for tax authorities for the granting of withholding tax relief;
• A single point of contact in Member State tax administrations to deal with questions from investors on withholding tax.