24 May 2013

TBAG Report 2013: Workable solutions for efficient and simplified fiscal compliance procedures related to post-trading within the EU

The aim of the Tax Barriers Business Advisory Group (initially created in June 2010 as a sub-group of CESAME2 and now working as an independent Expert Group) is to consider the follow-up to the Commission Recommendation on Withholding Tax Procedures from a business perspective, and to identify any remaining fiscal barriers affecting the post-trading environment.

The principle recommendations flow from the FISCO-Report (2010) in which Member States were urged to, and have in principle agreed, to a common policy in which Member States move towards a consistent and simplified withholding tax model based on the availability of both tax relief at source and post pay date refunds.

In this report, the group has provided more detailed recommendations. Tax relief at source will be applied by financial intermediaries, authorised in contract by Member States, and supported by a simplified requirement for documentation of beneficial ownership, integrated with existing international regulatory principles such as KYC and AML. The group also makes specific recommendations with respect to post pay date refunds. These recommendations focus on improvements to efficiency and use of technology that will lead to a more consistent reclaim process for Member States, intermediaries and investors alike.

Structural changes intended to support this policy include recommendations on improved quality and distribution of guidance from Member States on the interpretation of both double tax treaties and domestic law reliefs, use of common and standardised forms and procedures, adoption of technology allowing for electronic transmission and processing of documentation, clarification of the liability of financial intermediaries and the implementation of control and oversight mechanisms, including annual information reporting and exchange as well as independent oversight. In particular, the report provides (i) specific suggestions for determining the liability of intermediaries in context to the proposed system, (ii) a proposed more formalised and standardised guidance and exchange of information from and between Member States, (iii) suggested content for AI agreements, (iv) proposals for documentation of beneficial owners including self certification of residency, (v) proposals for tax information reporting content and audits as a control and oversight system based on a recommendation for Home State oversight and reporting with exchange of information rules permitting the transfer of such information to the source State.

The T-BAG Group believes that there is ample legal precedent, to allow Member States to harmonise and simplify their withholding tax procedures, as envisioned in the FISCO Report, either on a voluntary basis or via a Directive or both. Due to the difficulties and time frame likely under a Directive based approach, the T-BAG Group favours a voluntary solution adopted by Member States to be implemented in a phased way.

In total, the implementation of these recommendations will achieve the objectives of the Commission and Member States, to improve the efficiency of the markets by removing the barriers to the free flow of capital resulting from the current inconsistent, fragmented and inefficient relief mechanisms.

Full report

FISCO-website

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