PensionsEurope backs EC plans for withholding taxes; supports standardised relief at source system

PensionsEurope has welcomed the European Commission’s (EC) roadmap on a new European Union (EU) system for the avoidance of double taxation and prevention of tax abuse in the area of withholding taxes (WHT).

The feedback is in response to the EC’s roadmap, which aims to introduce a common EU-wide system for withholding tax on dividend or interest payments. The EC’s plans will include a system for tax authorities to exchange information and cooperate with each other.

“We support the current commission´s mandate call for removing all barriers to the completion of the Capital Markets Union (CMU) – particularly in the field of simplifying taxation,” PensionsEurope said.

“We agree with the important remarks of the commission on the current challenges with WHT procedures across Europe, and we have explained those challenges and obstacles from pension funds’ point of view in PensionsEurope position paper on the withholding tax refund barriers to cross-border investment.”

It supports the objective that a standardised relief at source system should become the principal mechanism for WHT relief procedures and their streamlining. It believes this approach is “best practice” for pension funds.

“Regarding the suggested policy options in the EC roadmap, we find that the option 2 (establishment of a fully-fledged common EU relief at source system) combined with the option 3 (enhancing the existing administrative cooperation framework to verify entitlement to double tax convention benefits) would be the best solution for both market participants (efficient and low cost) and tax authorities (sufficient safeguards to mitigate abuse risks).”

However, there are also many other recent WHT proposals which the EC should thoroughly consider, the association stated. For example, the association has proposed that the EC establishes an EU tax register of recognised pension institutions to enable member states to recognise pension institutions reciprocally and automatically.

“Furthermore, in many countries pension institutions invest cross border via specialised investments funds and/or vehicles to increase the economies of scale, and it is important to ensure a tax-neutral treatment of these investment structures as well,” PensionsEurope stated.

The association also stresses that establishing a cross-border investment-friendly tax environment in the EU not only requires removing unfair tax treatment but also introducing tax incentives.

“The EC’s statement that ‘[…] Tax and other financial incentives, as well as collective bargaining play an important role […]’ in ‘improving the cost-effectiveness, safety and equitable access to supplementary pension schemes’ is still valid and should be considered as well,” PensionsEurope said.

In regards to financial incentives, the association referenced the OECD report, Financial incentives for funded private pension plans OECD country profiles 2020, as being “very helpful”.

It also highlighted the High-level group of experts on pensions, which recommended in its final report that “member states should reserve tax and/or financial incentives in both the saving and the pay-out phase for supplementary pensions meeting minimum quality requirements. These incentives should reflect the diversity in characteristics of types of pensions and the related social policy of a member state”.

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