EU Aims to Streamline Rules After Dividend Tax Dodge Scandals

(Bloomberg) -- The European Union’s executive arm proposed Monday to simplify tax rules to avoid double taxation for citizens and companies and to crack down on behavior that led to the Cum-Ex and Cum-Cum tax scandals.

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The European Commission plans to make withholding tax procedures across the bloc more efficient and secure for investors, banks and member states’ tax administrations, it said, focusing particularly on tax payments on interest or dividends by cross-border investors.

The plan is aimed in part at countering the fraud exposed in the Cum-Ex and Cum-Cum investigations that have cost taxpayers an estimated €150 billion globally over the past two decades. Those probes related to controversial dividend arbitrage trades that used complex structures to avoid dividend taxes or reap multiple rebates on taxes paid only once.

Read more: The ‘Cum-Ex’ and ‘Cum-Cum’ Tax Dodges Haunting Banks: QuickTake

Officials in Brussels are also responding to the current lengthy, costly and cumbersome procedures for getting a refund for any excess tax paid in another member state, with 70% of retail investors choosing not to apply for such refunds or stay away from investing as they have to deal with more than 450 different forms across the bloc.

“We want to support the single market, make life easier for businesses, investors and national authorities,” EU Economy Commissioner Paolo Gentiloni told reporters.

The rules foresee the creation of a common EU digital tax residence certificate to be issued within one working day after submission instead of relying on paper-based procedures. The commission is also proposing an option of either relief at source or a quick refund system to make the process faster and harmonized across the EU. These standardized procedures are estimated to save investors about €5.2 billion ($5.7 billion) a year.

The plan must be approved unanimously by members states. The commission said it aims to have the the proposal come into force on Jan. 1, 2027.

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