European Commission publishes draft Directive on Faster and Safer Relief of Excess Withholding Taxes (FASTER)

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EY Global

20 Jun 2023
Subject Tax Alert
Categories BEPS 2.0
Jurisdictions European Union
  • The European Commission (the Commission) published a legislative proposal for a Directive setting forth rules aimed at making withholding tax procedures in the European Union (EU) more efficient and secure.
  • The Commission has three core goals for this proposal:
    • Remove barriers to cross-border investment (Capital Markets Union)
    • Strengthen Member States' ability to prevent and fight against potential fraud or abuse
    • Improve processes for the benefit of (portfolio) investors
  • The proposal includes three building blocks: (i) a common EU digital tax residence certificate; (ii) a choice between or combination of a "relief at source" system and a "quick refund" system; and (iii) common reporting.
  • The Commission proposes that the rules come into effect as of 1 January 2027.

Executive summary

On 19 June 2023, the Commission published a legislative proposal for a Directive setting forth rules that aim to make withholding tax (WHT) procedures in the EU more efficient and secure for investors, financial intermediaries and Member States (the draft Directive (pdf), is also referred to as FASTER). This initiative was earlier announced in the Commission's 2020 Action Plan on the Capital Markets Union.

The draft Directive proposes the following key actions:

  • A common EU digital tax residence certificate to be issued by the investor's residence state within one working day after a request is submitted
  • A choice for Member States between "relief at source" procedure and a "quick refund" system or a combination of both
  • A standardized reporting obligation that imposes common reporting obligations on all financial intermediaries in the chain through the establishment of a national register of certified financial intermediaries; registration will be mandatory for "large financial institutions" and voluntary for others, and non-EU intermediaries can participate on a voluntary basis

Together with the draft Directive, the Commission also launched a public consultation inviting public input on the proposal in the form of open comments by 14 August 2023.

The draft Directive will now move to the negotiation phase among Member States with the aim of reaching a final agreement. In the EU, adoption of tax legislation generally requires unanimity between all 27 Member States. The Commission proposes that the Member States shall transpose the Directive into their national laws by 31 December 2026 for the rules to come into effect as of 1 January 2027.

Detailed discussion


The fragmented framework of WHT procedures in the EU causes a number of obstacles for investors and financial intermediaries involved. Obstacles exist through, for example, burdensome procedures to relieve excess tax withholding at the source on dividends or interest. WHT procedures are also at risk of tax fraud and abuse, such as in the so-called cum/cumi and cum/ex1 cases.

In 2020, the Commission published an Action Plan for fair and simple taxation to support the recovery strategy2 and an "Action Plan on a Capital Markets Union for people and businesses." Among the reforms proposed in these action plans, the Commission had announced plans to table a legislative proposal for introducing a common, standardized, EU-wide system for withholding tax relief at the source, accompanied by an exchange-of-information and cooperation mechanism among tax administrations.

Subsequently, on 1 April 2022, the Commission launched a public consultation on the proposal in the form of the questionnaire. According to the explanatory memorandum to the draft Directive, the Commission has concluded from the feedback provided that there is broad consensus on the problems arising from the different WHT procedures across Member States and on the need for EU action to tackle the fragmented and inefficient situation. However, the Commission noted differences between the main stakeholder groups regarding possible options to remedy these issues; while investors and financial intermediaries considered that relief at the source, complemented by WHT refund systems as a back-up, would provide the best results, Member States mainly expressed support for introducing a common EU-wide digital tax residence certificate.

The draft Directive

In the draft Directive, the Commission proposes to introduce three key actions, which are summarized below.

Digital tax residence certificate

The draft Directive introduces a common EU digital tax residence certificate (eTRC) to be issued by Member States through an automated process to a person deemed resident in their jurisdiction for tax purposes. The eTRC should be issued within one working day after the submission of a request and cover at least the whole calendar year in which the request for the certificate is made. Member States can nevertheless rescind an eTRC issued where the tax administration has proof to the contrary regarding the tax residence for that year. Member States should recognize an eTRC issued by another Member State as adequate proof of a taxpayer's residence in that other Member State. The Commission is expected to adopt implementing acts with standard computerized forms and technical protocols for the issuance of an eTRC.

Relief systems

The draft Directive introduces a standardized WHT relief procedure that is compulsory for dividends from publicly traded shares and optional for interest payments on publicly traded bonds. This procedure only applies to situations in which the entity making the payments (i.e., the listed company) is tax resident in the EU Member State. Member States will be able to choose one of the two below relief systems or a combination of the two:

  1. "Relief at source" procedure: the reduced tax rate or exemption is applied directly at the moment the dividend/interest is paid
  2. "Quick refund" procedure: the initial payment is made taking into account the domestic statutory withholding tax rate; a refund of the excess WHT levied can be granted within 50 days from the date of payment

Common rules would be introduced to define when financial intermediaries would be held liable for the provision of incorrect data, which would lead to loss of tax revenue for the Member State. The liability would be placed at the level of the financial intermediary closest to the investor, who is responsible for performing the due diligence requirements. The intermediary would be liable for misreporting or underreporting, unless the intermediary proves it has taken reasonable measures to check the taxpayer's entitlement to reduced WHT rates.

Standardized reporting obligation

Member States will be required to establish a national register of certified financial intermediaries containing information such as the name and date of registration of the financial intermediary. Large EU financial intermediaries (as defined in Regulation (EU) No 575/2013) will be required to join the register, which will also be open to non-EU and smaller EU financial intermediaries on a voluntary basis. The national register will be made publicly accessible on a dedicated website of the Member State and updated at least once a month.

According to the draft Directive, Member States should then require certified financial intermediaries in their national register to report the payment of dividends or interest to the relevant tax administration so that the latter can trace the transaction. Aimed at tackling abusive transactions, the reportable data elements also include information regarding the holding period or whether the income payment is connected to certain financial arrangements such as stock loans, swaps, repossessions, etc. The information to be reported is included in Annex II (pdf) of the draft Directive.

The reporting will take place via a standardized XML format scheme that will be set out in an implementing act to be adopted by the Commission.

Member States should also require certified financial intermediaries in their national register to keep the documentation supporting the information reported for five years and to provide access to any other information, as well as access to their premises for the purpose of audit.

Next steps

Article 115 of the Treaty on the Functioning of the European Union provides the legal basis for the draft Directive. Proposals put forward under this special legislative procedure are subject to the Council's unanimity, while the European Parliament only has an advisory role.

As with previous Directives on direct taxation, the proposal will likely undergo numerous changes during the negotiation process. Consequently, the final Directive, if adopted at all, could differ significantly from the current proposal.

Once unanimity is achieved, the next step would be publication of the Directive in the Official Journal of the EU. The Commission proposes that the Member States shall bring into force the laws, regulations, and administrative provisions necessary to comply with the provisions of the final Directive by 31 December 2026, and that they shall apply these provisions from 1 January 2027. The Commission proposes to submit a report on the evaluation of the Directive by 31 December 2031 and every five years.


Adoption of the proposed Directive would mark a significant step in the area of taxation within the EU as it is the first harmonization in the field of WHT relief procedures within the Union.

Since this initiative aims to introduce a common EU-wide system for withholding taxes on certain dividend and interest payments, it may have a material impact on the functioning of cross-border capital markets. It will have a significant impact on asset-servicing organizations such as custodian banks that typically provide withholding tax services to clients. These organizations will need to understand the impact to their business model, liability and any consequent client impact. While it is not yet known whether Member States will embrace the Commission's initiative, businesses and investors should closely monitor the adoption process and consider engaging with policy makers under the public consultation procedure.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Belastingadviseurs LLP, Rotterdam
  • Marlies de Ruiter
  • Maikel Evers
Ernst & Young Belastingadviseurs LLP, Amsterdam
  • Max Velthoven
  • Konstantina Tsilimigka
Ernst & Young LLP (United Kingdom), London
  • Paul Radcliffe
  • Reinhart Devisscher

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.

  • Show article references#Hide article references

    1 In a cum/ex transaction, unfunded WHT reclaims are made and multiple parties benefit from a WHT refund on the same income event with only a single WHT payment made to the relevant tax authorities. In other words, more WHT is refunded than is actually paid to the relevant tax authorities.

    2 A cum/cum trade is a transaction that typically involves a temporary transfer of securities to obtain more advantageous WHT treatment. Commonly, the transferee of the securities receives the upcoming income (dividend/interest) payment at a more advantageous WHT rate (due to a relevant tax treaty or their specific tax status) than the transferor's WHT rate, even though the transferor retains economic exposure for the transferred security. The WHT saving generated through this transaction may be split by the parties to the transaction. This practice is also known as dividend arbitrage.

    3 See EY Global Tax Alert, European Commission publishes action plan for fair and simple taxation: A detailed review, dated 20 July 2020.