TEI Comments on European Commission’s Proposal to Implement Uniform EU-Wide Withholding Tax System

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TEI commented on the initiative of the European Commission (EC) to introduce a common, European Union-wide system for withholding taxes on dividend and interest payments in June 2022. The initiative is intended to standardize and simplify the varied withholding tax approaches of EU member states.

Those approaches vary by country, payment type, and whether there is a multilateral aspect to the payment and withholding. TEI commended the EU for considering a standardized withholding tax approach, which would significantly reduce administrative costs for tax authorities and the compliance burden for taxpayers. In the Institute’s view, implementing a uniform withholding tax system would be most beneficial for dividend and interest payments between unrelated parties. Therefore, the EC should address those payments first.

Further study is required for intercompany payments, because the proper treatment of such payments must navigate various anti-avoidance rules—such as various GAARs, anti-hybrid rules, and the definition of beneficial owner—before a determination can be reached about whether withholding taxes are properly imposed. TEI’s recommendations focused on the need for true uniformity if such an EU-wide system was implemented. These included common definitions of terms, the use of only the source country’s language for documentation, a single translation into one other common language (e.g., English or French), leveraging information already collected by tax authorities to determine withholding tax requirements, and electronic verification of documents, among other things. The Institute also noted the need for uniform and timely responses from tax authorities about withholding tax issues raised by taxpayers.

TEI’s comments were prepared by a working group of the Institute’s European Direct Tax Committee, led by Ralf Thelosen of Citco. Ben Shreck, TEI tax counsel, supported this initiative from the TEI staff.

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