June 23, 2023
To encourage greater cross-border trading in securities and support the growth of the bloc’s capital market, the European Commission on Monday suggested changes to the way investors pay withholding tax in the EU.
The proposal from the Commission aims to ensure that international investors pay the correct amount of withholding tax right away or that they receive any refunds to which they are entitled as soon as possible.
Refund procedures can be time-consuming and expensive. Studies reveal that about 70% of retail investors who would be entitled for a reduced withholding tax rate do not claim it, which is extremely frustrating, according to European Economic Commissioner Paolo Gentiloni.
“It also discourages investment in the EU. A recent study found that this tax barrier has caused 30% of ordinary investors to sell their EU portfolios. We cannot let this condition to persist, he said.
The Commission suggested to standardize the 27-nation bloc’s disparate withholding tax policies, dividing them into either a “Relief at Source” or a “Quick Refund System” open to all investors. Whichever one they decide to choose is up to the EU countries.
The appropriate withholding tax rate would be imposed under the “relief at source” method at the time a dividend on shares the investor purchased was paid.
The investors would still pay an excessive tax under the speedy refund system, but they would receive a refund within 50 days.
The idea, according to Gentiloni, “would significantly shorten the refund process and provide investors a greater motivation to claim the money they are entitled. Due to the fast-track processes, “in fact, we estimate that our proposal will save investors an estimated 5.17 billion euros per year,” he stated.
The measures, according to the Commission, should encourage more investors from outside the EU to put money into European securities and increase intra-EU share and bond trading, all of which will contribute to the growth of the EU’s capital market, which will be necessary to raise money for the union’s switch to renewable energy sources.
Source: Reuters
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