EU Lobbyists Seek Mandatory Tax Relief on Outbound Dividends

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Joe Kirwin

The European Union should adopt mandatory tax exemption rules for outbound dividend payments to hasten the creation of a capital markets union in the bloc, according to an influential EU finance industry lobby group.

Responding to the European Commission’s recommendations for removing barriers to an EU capital markets union, the Association of Financial Markets in Europe—whose members include HSBC, Banco Santander SA, BlackRock Inc., and KKR & Co. L.P.—insisted that problems of double taxation on dividends are well-known, adding that it was time for legislative action.

“Detailed solutions have been developed by the Tax Business Advisory Group, an expert group set up by the European Commission,” Werner Frey, the director of the Association of Financial Markets in Europe, or AFME, Post Trade Division, told Bloomberg BNA on March 2.

“The solutions are readily at hand—what is missing to date is the implementation by member states, ideally in a mandatory way.”

While some EU member states have effective and timely reclaim processes, AFME officials reiterated that others have a reputation for undue delays in honoring withholding tax reclaims. As a result, the prime objective is exemptions, and when this is not possible there should be a “efficient and speedy reclaim process,” AFME added.

Asset Management Support

The call for mandatory EU legislation requiring mandatory tax exemption rules has the support of the European Fund and Asset Management Association, whose members oversee assets worth approximately $21 trillion.

However, EFAMA also noted the difficulties of passing EU-wide tax legislation to resolve the withholding tax problems.

“A harmonization of the withholding tax procedures would solve many of the current problems,” EFAMA said. “However, given that taxation is a national competence we realize such harmonizing legislation would prove difficult.”

Refund Delays Frustrating

The frustration of AFME and EFAMA over the long-standing problem of double taxation and delays in getting refunds is warranted considering several rulings from the European Court of Justice, that EU member states’ outbound dividend withholding taxes are discriminatory and violate the bloc’s rules mandating the free movement of capital.

The most recent ECJ judgment occurred in 2012 (C-338/11) when the EU high court ruled in favor of a legal challenge by Santander Asset Management SGIIC SA against the French government. Previously the ECJ ruled (C-303/07) in 2009 that Finnish outbound withholding taxes on dividends paid to non-resident companies were discriminatory.

White Paper

Despite those court rulings, the European Commission’s Feb. 22 white paper acknowledged barriers still exist and said they cost as much as $9 billion in foregone tax relief.

“To avoid double taxation of cross-border investment most bilateral tax treaties provide for withholding tax refunds,” the commission’s paper said. “In practice however, investors face complex, demanding, resource-intensive and costly procedures.”

Code of Conduct

Instead of committing to EU legislation on the issue, the commission said it will issue a code of conduct by the end of 2017 by which member states should abide.

Meanwhile the EU executive body listed nine best practices that member states have adopted that should be considered by all EU countries in order to expedite tax refunds on outbound dividend payments. It also said it will issue a “scoreboard” in 2019 outlining member country progress on implementing the best practices and the upcoming code of conduct.

The nine best practices are as follows:

  •  establish a “quick refund” procedure, such as in the Netherlands;
  •  provide refunds in a period of less than six months, as practiced in Slovenia;
  •  simplify documentation requirements that allow proof other than a certificate of tax residence and extend the certificate’s validity to more than a year, as allowed in Sweden;
  •  replace claim forms by a single document, as in Cyprus;
  •  make claim forms available online, as allowed in Portugal;
  •  allow completion of the whole refund process online, as now allowed in Finland
  •  allow foreign financial institutions to handle the withholding tax procedures—i.e. no need to have a local agent—as in Estonia;
  •  allow foreign financial institutions to claim relief on behalf of their clients, as in Lithuania.

To contact the reporter on this story: Joe Kirwin in Brussels at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

For More Information

The European Commission Capital Union white paper on national barriers is at http://src.bna.com/mFL

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