EU to propose system for harmonized withholding tax relief

By Francesca Amaddeo, Researcher, Tax Law Competence Centre (SUPSI), Manno, Switzerland

On 24 September, the EU Commission adopted its long-awaited new action plan for the capital market union.

16 actions, one goal. Once again, taxation may be the lever.

According to Action 10 of the Capital Market Union action plan, the Commission will propose a standardized EU system for withholding tax relief at source.

The EU Commission wishes to improve the integration of national capital markets into a genuine single market. However, taxation is deemed as an obstacle to such an integration due to the lack of harmonisation of national legal systems.

Different tax regimes and withholding taxes may discourage investors and savers. In particular, double taxation affects the cross-border capital market.

Usually, taxes are paid in both Member States (of the investor and the investment). Only in the second phase, it is possible to ask for a refund. This mechanism is burdensome and expensive in terms of time and resources, clearly playing a negative role.

The OECD has already released the so-called TRACE, treaty relief, and compliance enhancement system. In accordance with the EU code of conduct on withholding tax, TRACE provides orientation on a kind of harmonized mechanism.

Harmonization and withholding tax, an “odd couple”, which can surely lead to a high improvement for the functioning of the desired capital single market.

Capital Market Union: a stepping stone after COVID-19?

The capital market union is an ambitious plan to create a single market for capital.

It represents the natural continuation of the introduction of the euro as a common currency in 1999, strengthened by the launch of the Banking Union in 2012.

The proposal was launched for the first time in 2015, and it has at last reached its final stage.

The goal is to boost the money flow from investments and savings across the EU for the benefit of consumers, investors, and companies, regardless of where they are.

The capital market union aims to support and reinforce the EU’s global competitiveness and autonomy, helping the financial sector become more resilient and offering new opportunities for investors and savers.

The COVID-19 pandemic has emphasized the capital market union, which now arises as a key tool to relaunch the EU economy.

“Public support and bank loans have helped households and businesses stay afloat by addressing the short-term liquidity squeeze caused by lock-downs. In order to stay solvent in the medium and long term, however, businesses need a more stable funding structure”, the Commission stated in its communication announcing the new plan.

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Francesca Amaddeo

Lecturer-researcher at Tax Law Competence Centre, Department of Business Economics, Health and Social Care, University of Applied Science and Arts of Southern Switzerland (SUPSI)

Dr. Francesca Amaddeo, PhD in European law and national legal systems, is an Italian lawyer that works as Lecturer-researcher at the Tax Law Competence Centre, Department of Business Economics, Health and Social Care, University of Applied Science and Arts of Southern Switzerland (SUPSI).

Latest posts by Francesca Amaddeo (see all)

• International taxation: two-pillar plan and the OECD mainstream - February 28, 2022
• Swiss federal act on implementation of international tax agreements: ready for January 2022 - November 23, 2021
• EU Commission seeks to ease withholding tax mechanism on cross-border investments - October 26, 2021
• CJEU to review German transfer pricing obligation: do national tax rules affect EU freedoms? - October 11, 2021
• Switzerland advances withholding tax reform - May 17, 2021

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