PART II of the SDS Whitepaper Series about the EU FASTER Directive now available: Technical implications of the proposed initiative.

The proposed EU FASTER initiative tackles the issue of a practical tax disadvantage for non-domestic investors within the EU. The second part of our whitepaper series on the new EU FASTER Directive explains what the EU proposal looks like and what the potential pitfalls of implementation could be.

The proposed EU FASTER initiative tackles the issue of a practical tax disadvantage for non-domestic investors within the EU.

This disadvantage, also known as Giovannini Barrier 11, has been a problem for the free flow of capital within the EU for a long time and no practical solution has been found so far. In order to eliminate the high cost and administrative burden regarding the proper taxation of cross-border payments both in the source and the target country, the EU now proposes a mix of at least two withholding processes.

For undisputed cases, a fast-track procedure (either quick refund or relief at source) has to be implemented by the EU countries that grant tax relief for cross-border income. The system shall be easily accessible to investors. In particular, an electronic tax certificate shall help with the identification of the beneficiary’s tax status, and the fast-track procedures shall be handled primarily by the financial intermediary within the payment chain. Both measures shall facilitate a faster relief than with the current procedures.

For disputed cases, namely for transactions within two days prior to the so-called ex-date of dividend payment and for transactions that are linked to open financial arrangements, no such fast-track procedure shall apply. Instead, the traditional long-form approach has to be used.

The two rules and the proposed handling of unsettled transactions raise a number of questions that have been addressed by the financial industry. From a specialist’s point of view, some of the proposed rules do not appear to make things easier. In some cases, we may even see a rollback of some simplifications that the industry has already adopted.

However, since most of the disputed rules are designed to target tax abuse, it is unclear to what extent the tax authorities in the EU are willing to listen to the concerns of the industry.

To learn more about what the EU has proposed and what the potential pitfalls for implementation are, download the second part of our whitepaper series on EU FASTER.