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May 14, 2024

EU Member States reach political agreement on Directive on Faster and Safer Relief of Excess Withholding Taxes (FASTER)

  • European Union (EU) Member States reached political agreement on the Directive on Faster and Safer Relief of Excess Withholding Taxes (FASTER).
  • Member States have until 31 December 2028 to transpose the Directive into national law.
  • The Directive 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.

Executive summary

On 14 May 2024, the Council of the EU (i.e., the EU Member States) reached political agreement on the 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 Directive is also referred to as FASTER). The Commission proposed the Directive on 19 June 20231 and had earlier announced it in the Commission's 2020 Action Plan on the Capital Markets Union.

The Directive prescribes the following key actions:

  • A common EU digital tax-residence certificate (for individuals and corporate entities) to be issued by the Member State of residence within 14 calendar days 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, to be applied to WHT that a Member State can withhold on dividends from publicly traded shares and, where applicable, interest from publicly traded bonds
  • A standardized reporting process that imposes common reporting obligations on certain financial intermediaries in the chain through a national register of certified financial intermediaries

The European Parliament, which initially provided its nonbinding opinion on 28 February 2024, will need to be reconsulted given the substantial changes that have taken place on the proposal during the negotiations. Given the nonbinding nature of this advice, EU Member States are expected to formally adopt the Directive after the European Parliament has weighed in.

EU Member States will then have until 31 December 2028 to transpose the Directive into national legislation, with the rules applicable for fiscal years starting on or after 1 January 2030.

Detailed discussion


The fragmented framework of WHT procedures in the EU raises a number of obstacles for investors and financial intermediaries involved. Obstacles exist, for example, through burdensome procedures to gain access to the lower levels of WHT on dividends or interest provided for in tax treaties and relevant EU Directives. WHT procedures can also present tax fraud and abuse issues, such as those presented in so-called cum/ex2 and cum/cum3 cases.

In 2020, the Commission published an Action Plan for fair and simple taxation to support the recovery strategy4 and an "Action Plan on a Capital Markets Union for people and businesses." Among the reforms proposed in these action plans were plans to table a legislative proposal for introducing a common, standardized, EU-wide system for WHT relief at the source, accompanied by an exchange-of-information and cooperation mechanism among tax administrations.

Subsequently, in June 2023, the Commission published the legislative proposal for FASTER.5 Together with the draft Directive, the Commission also launched a public consultation, inviting public input on the proposal in the form of open comments to be submitted by 14 August 2023. (EY submitted a comment letter, which can be accessed here.)

EU Member States initiated negotiations on the draft Directive during the third quarter of 2023. The final text of the Directive was ultimately agreed to on 14 May 2024 during an Economic and Financial Affairs Council (ECOFIN) meeting.

The FASTER Directive

The final version of the Directive includes key changes to the Commission's original proposal, including the following:

  • Additional time for issuance of the EU digital tax residence certificate (eTRC) — to be issued within 14 calendar days after a request is submitted, instead of within one working day as initially proposed
  • Possibility for Member States to maintain their current relief-at-source system if they have a comprehensive relief-at-source system and a low market-capitalization ratio — the initial proposal by the Commission did not foresee such possibility
  • Additional discretion given to Member States — which can now reject the registration of Certified Financial Intermediaries (CFIs) in national registries, remove CFIs from national registries, and reject CFIs' requests for FASTER tax relief in cases where the CFIs are undergoing investigations around tax abuse or having committed "infringements of national legislation"
  • Special provisions introduced for "indirect investments" — introduced to provide relief in cases where certain collective investment undertakings (CIUs) or the investors therein are entitled to relief but are not the registered owner because the securities are held by a different legal person or by a fiscally transparent CIU
  • Several definitions further clarified — such as the definition of financial intermediary, CIU and securities payment chain
  • Introduction of a European CFI Portal — a portal to serve as the electronic access point for financial intermediaries to apply for registration in the registers of the Member States
  • Entry into effect shifted to 1 January 2030 — instead of the original date of 1 January 2027

The three key actions introduced by the Directive are summarized below.

  1. Digital tax residence certificate

The Directive introduces an eTRC, which a Member State is to issue through an automated process to a person deemed resident in their jurisdiction for tax purposes. The eTRC should be issued within 14 calendar days after submitting the request for the certificate. The eTRC covers a period not exceeding the calendar year or the period of a fiscal year for which it is issued. 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.

  1. Relief systems

The 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 relief systems, below, 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 WHT rate; a refund of the excess WHT levied will be granted within 60 days after the end of the period given to request the quick refund

An exemption from applying the relief systems is foreseen for Member States that have a "comprehensive relief-at-source system" and a market capitalization ratio (this ratio is to be expressed as a percentage of the market capitalization of a Member State to the overall market capitalization of the European Union on 31 December in a given year) less than 1.5% for each of the four consecutive years as set out in the four latest publications by the European Securities and Markets Authority available on the deadline for transposing the Directive.

A "comprehensive relief-at-source system" means a system that is applied by a Member State and meets specific conditions outlined in the Directive including that it: (i) is accessible to taxpayers eligible to access the quick refund procedure under the Directive; (ii) aligns with the exclusions, liability framework and reporting requirements under the Directive; and (iii) upholds the implementation of effective, proportionate and dissuasive penalties for noncompliance.

Even if the exemption above does not apply, Member States should nevertheless be able to restrict the use of relief at source or quick refund procedures in cases of elevated risk of tax fraud and abuse. Article 10(2) of the Directive contains a list of situations where Member States have the discretion to exclude requests for relief and conduct further checks:

  1. the dividend has been paid on a publicly traded share that the registered owner acquired in a transaction carried out within a period of five days before the ex-dividend date;
  2. the dividend payment on the underlying security for which relief is requested is linked to a financial arrangement that has not been settled, expired or otherwise terminated before the ex-dividend date;
  3. at least one of the financial intermediaries in the securities payment chain is not a CFI and no CFI has assumed the position of that financial intermediary;
  4. an exemption of the withholding tax is claimed;
  5. a reduced withholding tax rate not deriving from double tax treaties is claimed;
  6. the dividend payment exceeds a gross amount of at least 100.000 EUR, per

registered owner and per payment date.

With regard to point (f) the Directive further clarifies that the amount shall be determined by the gross dividend amount per investor holding equity in a CIU when this underlying investor is entitled to relief under the indirect investments provisions.

Furthermore, the Directive provides that point (f) will not apply when the entity entitled to the relief of excess WHT is a:

  1. Statutory pension scheme of a Member State or an institution for occupational retirement provision registered or authorized in a Member State; or
  2. Collective investment in transferable securities or an alternative investment fund (AIF) established in the EU or an AIF managed by an alternative investment fund manager established in the EU.

It is also worth noting that the final Directive has not provided a self-contained definition of beneficial ownership. Instead the Directive provides that the registered owner declares, when required by the source Member State, that they are the beneficial owner in accordance with national legislation of the source Member State or a double tax treaty, where applicable.

  1. Standardized reporting obligation

Member States will be required to establish a national register of CFIs 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 Directive, Member States should then require CFIs in their national register to report the payment of dividends or interest to the relevant tax administration so that tax administration 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. The information to be reported is included in Annex II of the 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 CFIs in their national register to keep the documentation supporting the information reported for 10 years and to provide access to any other information, as well as access to their premises for the purpose of audit.

Next steps

The European Parliament, which initially provided its nonbinding opinion on 28 February 2024, will need to be reconsulted given the substantial changes to the proposal during the negotiations. Like the initial advice, the advice of the European Parliament is not binding. Following that, the Member States are expected to formally adopt the Directive and the final version will be published in the Official Journal of the EU. EU Member States are to transpose the provisions of the Directive into their national laws by 31 December 2028 and generally apply these provisions for fiscal years starting on or after 1 January 2030.


The Directive introduces a standardized electronic residence certificate process to replace diverging and time-consuming paper-based processes in many Member States.

As the Directive introduces a common EU-wide system for WHTs on certain dividend and interest payments, it is expected to have an impact on the functioning of cross-border capital markets.

The Directive will have a significant impact on asset-servicing organizations, such as custodian banks that typically provide WHT services to clients. These organizations will need to understand the impact to their business model, liability and any consequent client impact. Regarding liability, the Directive provides that CFIs can be held liable for all or part of a WHT loss where they do not comply, completely or partially, with their obligations under certain core provisions. Penalties are left to the Member States, but the Directive provides that such penalties should be "effective, proportionate and dissuasive." The core issue therefore will be — how do such CFIs manage this risk and fulfill their obligations? The greatest emphasis will likely be on the CFI's obligations to verify information when conducting due diligence of a registered owners' eligibility. The recitals of the Directive reference that a CFI should "take reasonable measures to perform such checks in good faith" and CFIs will need to understand what this means in practice.

Going forward, businesses and investors should also closely monitor EU Member States' adoption of the rules and the operational detail that the European Commission provides through implementing acts governing certain aspects of the Directive.

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1 See EY Global Tax Alert, European Commission publishes draft Directive on Faster and Safer Relief of Excess Withholding Taxes (FASTER), dated 20 June 2023.

2 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.

3 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.

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

5 See endnote i, above.

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Contact Information

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

Ernst & Young Belastingadviseurs LLP, Rotterdam

Ernst & Young Belastingadviseurs LLP, Amsterdam

Ernst & Young LLP (United Kingdom), London

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