Taxation and Customs Union

Taxation of securities income received by individuals

Taxation of securities income received by individuals

The taxation of income from securities (i.e. income from investments - usually dividends and interest) paid to individuals is not harmonised at EU-level, nor does the European Commission intend to harmonise it.

However, Member States may not restrict the free movement of capital within the EU. This means that a Member State where an individual is resident cannot subject securities income that that individual receives from another Member State to higher taxation than the taxation that would apply to domestic securities income of the same type. Similarly, a Member State cannot subject securities income paid to individuals in another Member State to higher taxation than securities income paid to individuals who are resident in that Member State.

There is a network of bilateral double taxation conventions between Member States that aim to eliminate problems of double taxation of income and capital. However, some problems of double taxation remain.

The European Commission believes that international double taxation is a major obstacle to cross-border activity and investment within the EU both by individuals and companies and that EU Member States should coordinate their efforts to eliminate it within the EU.

Withholding taxes

Code of Conduct on Withholding Tax

The Code of Conduct on Withholding Tax (WHT) was developed as a response to the 2015 Capital Markets Union Action Plan. The intention of the document is to improve the status quo of Withholding Tax Procedures.

Inefficiency in cross-border WHT reclaims and refunds is currently identified as one of the biggest barriers to a well-functioning capital market.

This Code of Conduct was developed with the intention of providing solutions to this problem and creating better conditions for cross-border investors.

Throughout the process of developing the code, the European Commission has benefited from the input of a project group of Member States' tax experts. Furthermore, all Member States were consulted on the basis of a draft of this European Taxpayers' Code at a meeting of the Direct Taxes Commission expert group.

The code is non-binding and calls for voluntary commitments by Member States.

Specifically, the Code applies to WHT procedures on cross-border passive income in EU Member states. This refers mainly to dividends, interests and royalties and are payed to both EU and non-EU citizens/investors.

Among other initiatives, the Code of Conduct suggests simplifying procedures to verify entitlement to tax relief, creating user-friendly digital forms to reclaim taxes withheld and establishing a single point of contact for all aspects concerning procedures on withholding tax.

Code of Conduct on Withholding Tax.
Press Release

Recommendation on withholding tax relief procedures

The European Commission adopted a Recommendation on 19 October 2009 (also known as “FISCO Recommendation”, from the name of the financial services expert group which investigated the issue dealt with in the Recommendation).

The Recommendation outlines how EU Member States could make it easier for investors resident in EU Member States to claim withholding tax relief on securities income received from other Member States.

Member States' bilateral double taxation conventions with each other often provide for reduced rates of withholding taxes on securities income paid to non-resident investors.

In certain circumstances, some Member States even unilaterally provide for reduced withholding taxes or exemptions on securities income paid to foreign investors. However, these reduced rates are often available only on the basis of claims by the investors and, in some cases, only by way of refunds.

At present Member States' procedures to verify claims for withholding tax reliefs are often so complicated and time consuming that investors may forego the reliefs to which they are entitled or even be discouraged from investing across borders.

The Recommendation, if implemented, would also facilitate financial institutions which currently find it difficult to do business across borders because of the tax barriers facing non-resident investors. The Recommendation also aims to protect Member States’ tax revenues against errors or fraud. The Recommendation is designed to provide guidance to Member States in how to ensure that procedures to verify entitlement to tax relief do not hinder the functioning of the Single Market.

For further information see the press release (IP/09/1543 ), the frequently asked questions (MEMO/09/462 ), the recommendation (C/2009/7924) and the study by Commission services

Feasibility Study on a standardised relief at source system

To follow up on the FISCO Recommendation, the Commission launched, a feasibility study in October 2011. The study is aimed at exploring the feasibility as well as the costs and the benefits of a standardised relief at source system coupled with information reporting/exchange between financial institutions and tax administrations. The study examines, from various perspectives, two different routes by which information could be provided by a financial institution to both the source Member State and the residence Member State. The study was conducted in two main phases which led to the delivery of a final report, in December 2012, and an addendum, in June 2013.

For further information see the note to readers, the executive summary of the study and the FISCO feasibility study (appendices & addtional appendices).

Further information