On 10 December 2024, the Council of the EU formally adopted the Faster and Safer Tax Relief of Excess Withholding Taxes (FASTER) directive. The text has been significantly modified since the first version of the proposal was published in June 2023.
The FASTER directive introduces a more efficient framework for withholding tax relief, thus enhancing transparency and legal certainty for taxpayers and Member States. The directive also seeks to reduce administrative burdens and improve cross-border investment conditions within the EU, while also tackling tax fraud and abuse.
Below are the key measures introduced by the directive and their implications for taxpayers and Member States:
Common EU Digital Tax Residence Certificate (eTRC). The directive introduces a standardised electronic tax residence certificate across Member States. This eTRC will be issued to individuals or entities deemed tax-resident within their jurisdiction and will be valid for up to one calendar or fiscal year. The eTRC will feature automated processes and standardised content, such as references to double tax treaties, and can be used to prove tax residence for purposes beyond withholding tax relief.
Member States are required to implement automated processes to issue eTRCs within 14 calendar days of a request, unless additional time is needed to verify tax residence.
Standardised procedures for withholding tax relief. The directive introduces two fast-track systems to complement the existing standard refund procedure for dividends from publicly traded shares and, where applicable, interest from publicly traded bonds:
- Relief-at-source system, which allows for the immediate application of a reduced withholding tax rate at the time of payment of dividends or interest.
- Quick refund system, under which excess withholding tax is refunded within 60 calendar days after the end of the refund request period.
Member States that provide relief from excess withholding tax on dividends from publicly traded shares will have to implement one or both new systems if they do not have a comprehensive relief-at-source system or a market capitalisation ratio below 1.5% for at least four consecutive years.
Exclusions from the fast-track procedures. While the directive aims to streamline tax relief, Member States may exclude certain transactions from fast-track procedures, such as:
– Dividends paid on publicly traded shares acquired by the registered owner within five days before the ex-dividend date,
– Transactions involving financial arrangements1 in place on the ex-dividend date,
– An exemption from withholding tax is claimed,
– A reduced withholding tax rate not deriving from double tax treaties is claimed,
– Dividend payments exceed EUR 100,000 (gross amount) per registered owner and per payment date, with exceptions for specific entities such as UCITs, AIFs, AIFMs, Member State statutory pension schemes, and institutions for occupational retirement provision registered or authorised in a Member State.
Rejections by the quick refund system. Member States can initiate verification procedures or tax audits based on risk assessments or incomplete information. Taxpayers whose fast-track requests are denied will still have the option to seek relief through the standard refund procedure.
Option for implementing the fast-track procedures. Member States with comprehensive relief-at-source systems (concerning dividends from publicly traded shares) and a market capitalisation ratio below 1.5% for at least four consecutive years may opt to maintain their existing frameworks instead of adopting the fast-track procedures.
However, once a Member State has reached or exceeded the market capitalisation ratio for at least four consecutive years, it will be required to implement the fast-track procedures within five years.
Member States will also have the same option if they provide relief from excess withholding tax on interest paid on publicly traded bonds.
Member States exercising this option must still comply with the eTRC requirements.
Access to the fast-track procedures for indirect investments. Specific measures exist to grant relief in situations where collective investment undertakings (such as UCITS and AIFs) or their investors are entitled to fast-track procedures, despite not investing directly (for example, when securities are held by a separate legal entity).
Financial intermediaries’ framework
National registers. To facilitate implementation of the fast-track procedures, EU and non-EU financial intermediaries – such as banks or investment platforms – will be required to register in a national register via a centralised EU portal. Only certified intermediaries will be authorised to process tax relief claims under the fast-track systems.
Reporting and due diligence obligations. These intermediaries will also be subject to standardised reporting obligations, which include providing detailed information on payment recipients, payers, and anti-abuse measures applied. Intermediaries will also have to carry out due diligence regarding the eligibility of the person/entity to benefit from tax relief.
Non-compliant intermediaries may face penalties and/or removal from the national register by in-scope Member States. Furthermore, intermediaries will be liable for all or part of the withholding tax losses resulting from their failure to comply with their obligations.
Next steps: The directive will be published in the EU’s Official Journal and must be implemented by 31 December 2028, with application starting from 1 January 2030.
[1] The term “financial arrangement” is to be understood as any arrangement used to shift the ownership of a security. The directive’s recitals provide a non-exhaustive list: futures contracts, repurchase transactions, securities lending and borrowing, buy-sell back transactions or sell-buy back transactions, derivatives, margin lending transactions, and contracts for difference (CFDs).
