European Parliament Proposes Reforms in the Field of Withholding Tax

European Parliament MEPs adopted recommendations to prevent withholding tax regimes from facilitating tax avoidance. The resolution, adopted by the Economic and Monetary Affairs Committee on January 25, points out that the system of withholding taxes between Member States has remained fragmented in terms of rates and relief procedure, which creates legal loopholes. It also notes that the current system is abused to shift profits, enables aggressive tax planning and creates the undesired effect of double taxation, as well as barriers to cross-border investments in the single market. As such, this fiscal aspect demands further attention and elaboration of a legislative framework.

Key points of the resolution are as follows:

– The European Commission is again requested to formulate a legislative proposal for an EU-wide withholding tax in order to ensure that payments generated within the Union are taxed at least once before leaving it. Text of the resolution also includes a provision for a possible minimum effective tax rate.

– The Commission and Member States are asked to establish a common withholding tax framework that reduces the complexity for investors and ensures that all dividend, interest, capital gains, royalties payments, professional services payments and relevant contract payments generated in the EU are taxed at an effective tax rate.

– Cooperation and mutual assistance between tax authorities, financial market supervisory authorities and law enforcement authorities regarding the detection and prosecution of withholding tax reclaim schemes must be promoted.

– The scope of the mandatory exchange of information about capital gains, including the granting of dividend and capital gains tax refunds, should be extended.

– There is a need for a standardised procedure for refunds of withholding tax across the EU, which will be important for retail investors.

Press release of the Committee 

European Commission Starts a Consultation on VAT in the Digital Age Initiative