AIMA celebrates agreement on the FASTER/Withholding Tax Directive

Published: 14 May 2024

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AIMA celebrates agreement on the FASTER/Withholding Tax Directive

Jack Inglis, AIMA CEO, said: "AIMA welcomes this encouraging move towards a better functioning withholding tax system within the EU. We hope it is just the first step towards a fully-fledged withholding tax system, which will go a long way towards completing the Capital Markets Union. We will continue to engage with policymakers as the new EU legislative cycle begins and encourage them to adopt more ambitious measures in this space."

The Alternative Investment Management Association (AIMA) welcomes the agreement reached today by EU Finance Ministers on the Directive on Faster and Safer Relief of Excess Withholding Taxes (FASTER Directive).

The agreement will encourage cross-border investment, thereby contributing to the objectives of the Capital Markets Union. However, more remains to be done so that the asset management industry – including AIMA's global investor members – can benefit fully from coordinated cross-border withholding tax procedures.

What's new?

The new Directive means that Member States will need to have a framework that offers investors either a relief-at-source or a quick refund of their excess withholding tax payments. This is expected to promote cross-border investment as the current system is not fit for purpose.

As highlighted in a 2021 survey by the European Central Bank, withholding tax relief procedures remain largely a paper-based process across the EU, requiring physical documents, wet-ink signatures, and physical interaction. This is a cumbersome and time-consuming process which discourages cross-border investment.

Further action needed:

AIMA is advocating for EU policymakers to build upon today's adoption to introduce a more ambitious withholding tax regime by considering the following further changes:

  • The regime's scope should be extended to all payments subject to withholding taxes (such as royalty payments for services, amongst others) and not only withholding taxes on dividends from publicly traded shares and interest from publicly traded bonds.
  • The electronic Tax Residency Certificate (eTRC) should be extended to non-EU resident investors as the asset management sector operates globally. By extension, many alternative fund investors are outside the EU.

What's next?

The Directive will enter into force in 20 days and take effect by 1 January 2030.

AIMA's involvement:

AIMA has consistently supported the introduction of a common withholding tax procedure across the EU to enhance cross-border investment.

  • In 2022, we responded to the Commission's consultation on the withholding tax initiative before the proposed Directive's formal release.
  • Since then, we have engaged with policymakers on the proposal's content to try and make it as ambitious as possible.