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EU-wide system for withholding tax relief

Withholding taxes Corporate taxation
Withholding taxes binders files on document report in business office.
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The Action Plan for fair and simple taxation supporting the recovery proposes to introduce a common, standardised EU-wide system for withholding tax relief at source.

Procedures for granting withholding tax refunds on cross-border investment are a major and long-standing barrier to the free movement of capital within the EU. In this context, the Capital markets union 2020 action plan aims to alleviate the tax burden in cross-border investment to foster capital markets integration.

The JRC actively contributed to the economic impact assessment of the FASTER initiative by analysing the effects of withholding taxes and relief procedures on cross-border investment and macro-economic aggregates using the general equilibrium model CORTAX.

The JRC estimates the costs associated with withholding tax relief procedures to amount to EUR 6.62 billion per year. Lengthy and inefficient withholding tax relief procedures can give rise to direct financial costs, implicit financial losses (i.e. opportunity costs) and foregone tax relief.

Reinforcing these estimates, the empirical analysis carried out by the JRC shows that investors are highly sensitive to these costs. Finally, the JRC quantified the macroeconomic effects of eliminating the costs associated with inefficient withholding tax relief procedures. For that purpose, the JRC has used the CORTAX model, a Computable General Equilibrium (CGE) model designed to analyse corporate tax reforms in the EU27, UK, US and Japan. The original version of CORTAX was modified appropriately in order to accommodate the relevant policy parameters in the context of this exercise.

For more information on the initiative and the JRC contribution, please refer to the dedicated website of the FASTER initiative.

 

Team

Serena Fatica

Jon Pycroft

Andrzej Stasio

Daniel Stoehlker

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