Common tax residence certificate (‘eTRC’)
The first main component introduced by the FASTER initiative is the introduction of a common digital tax residence certificate for all Member States. Investors will have to use this certificate as proof of their identification, including in order to benefit from the fast-track WHT relief procedures. The Member States will have to introduce automated procedures for the issuance of the eTRC in their jurisdiction.
WHT relief procedures
The second main component introduced by the FASTER initiative is the introduction of two fast track procedures to obtain WHT relief. Member States must, in principle, implement one or both of the following procedures:
- Relief at source system: in which the relevant tax rate is applied at the time of payment of dividends or interest.
- Quick refund system: in which the reimbursement of excess WHT is granted within a specific (and short) deadline.
Member States have the option to maintain their current relief system for interest. For dividends they can also keep applying their current system, but only if they have a comprehensive relief at source system and they have a financial market capitalization ratio of less than 1.5% of the EU total for each of the four consecutive years.
The Council also introduced additional circumstances in the text in which member states may exclude, completely or partially, requests for withholding tax relief from the fast-track procedures, in order to perform further checks, with a view to preventing fraud. Certain anti-abuse rules are also included in the text (e.g. for avoiding Cum/Ex or Cum/Cum schemes). Member States can also opt to exclude certain cases of these fast-track proceedings (e.g. if a dividend amount exceeds a certain threshold, for short-term arrangements,…).
Reporting obligations for financial intermediaries
In order to benefit from the WHT relief procedures, the concept of Certified Financial Intermediary (CFI) is introduced. CFIs will have a crucial role in the procedures set forth by the FASTER Directive. They will have to implement due diligence procedures to analyze and verify investors' eligibility for WHT relief (including beneficial ownership) and will be subject to standardized reporting obligations to Member States. These CFIs are financial entities involved in the payment chain between the securities issuer and the registered owner receiving payments. They include central securities depositories, credit/custodian institutions and investment firms. Large (and optionally smaller) CFIs will be included in a national register as incorporated by all Member States.
Next steps
The agreed text by the Council is a new step into the direction of a harmonized and more integrated WHT-relief system in the EU. The EU Parliament must still give a new nonbinding advice on the text, and the council will still have to take a final and formal decision afterwards.
If all goes according to plan, Member States will have to transpose the directive into national legislation by 31 December 2028, but the national rules will have to become applicable as from 1 January 2030.
