Is there a European project on withholding tax procedures within the EU?


A draft European Directive should be issued at the end of 2022 in order to define a common and standardised procedure within the European Union for withholding tax refunds for all Member States.

Indeed, the European Union has noted that the current functioning of withholding tax refund procedures in the Member States hinders cross-border investments in the European Union securities market because they are cumbersome and inefficient.

A public consultation on this draft Directive was conducted from April 1, 2022 to June 26, 2022. The French Banking Federation and AFTI1 have responded.

Why are the current procedures inadequate?

Today, within the EU, these procedures are not standardised and not dematerialised. In its response to the public consultation, the FBF2 indicates that they "require the use of numerous complex and divergent paper forms between countries. The country of investment often requires information that the investor is not able to provide or does not accept the tax residence certificate of the country of residence. These difficulties lead to investors not making the refund claim to which they would be entitled, resulting in double taxation on the investment made".

In 2016, the total amount of refunds foregone by investors, costs of refund procedures and opportunity costs were estimated at around €8.4 billion3, making the prospect of cross-border investments less attractive.

Furthermore, the EU believes that the lack of standardisation, the cumbersome and complex refund procedures increase the risk of fraud and tax evasion, while increasing the administrative burden for cross-border investments.

What solutions are being considered?

The main reflections concern:

  • The improvement of withholding tax refund procedures within the EU through the implementation of harmonised and dematerialised procedures;

  • The definition of the concept of beneficial owner;

  • The implementation of a system of withholding tax exemptions and deductions at the EU level. The question is whether this system would follow the TRACE (Treaty Relief and Compliance Enhancement) model advocated by the OECD4, which is based on the American "Qualified Intermediary" model. To date, only Finland has implemented this model;

  • Strengthening the existing framework for administrative cooperation;

  • The fight against abusive tax practices.

This project should therefore allow the development of a harmonised, efficient and modern withholding tax system within the EU.

Catherine Peyratout, Head of Client Taxation for SGSS, Societe Generale

1 AFTI: French Association of Securities Professionals.
2 FBF: French Banking Federatio

3 Source: European Commission report of 24 March 2017 entitled "Removing national barriers to capital flows to accelerate the completion of the capital markets union" (COM(2017)0147)
4 OECD: Organisation for Economic Cooperation and Development