A company can qualify for a withholding tax exemption and still have to fund the tax first. Corporate treasury teams finance payments that may later be refunded, while tax departments must navigate different evidence requirements across the EU.
The European Commission has acknowledged those obstacles and proposed removing some of them, but its central procedural changes for intra-EU dividends, interest, and royalties are scheduled for 2037. Companies need a workable route to existing relief long before then.
The commission’s proposal would remove minimum shareholding thresholds under the Parent-Subsidiary Directive and the Interest and Royalties Directive. Under the proposal, companies would no longer need to obtain advance approval from the tax authority or complete an administrative procedure to establish eligibility before applying the exemption.
Instead, the company making the payment would check whether the relevant conditions are met and, if so, pay the dividend, interest or royalty without withholding tax. Tax authorities could review that assessment afterward and challenge the exemption if the conditions weren’t met or the arrangement was abusive.
Although the proposal generally envisions application starting in 2029, the central changes wouldn’t apply until January 2037. This remains a proposed timetable, subject to the EU legislative process, and it shouldn’t become the timetable for every administrative improvement.
Delayed Relief Costs
The commission’s impact assessment describes procedures in some member countries that can take up to 24 months and reports cases where companies find it more economical to pay the tax than pursue an exemption. About 67% of the 117 respondents to its call for evidence identified problems with withholding tax relief under the two directives. The assessment states that most member countries don’t impose an upfront procedure for these exemptions.
Multinational groups operate across several jurisdictions, and a difficult claim in one can tie up cash and staff time. Before a recurring dividend, interest or royalty payment, a group may need to collect, validate and deliver evidence to a local payer. Different forms can apply depending on whether relief rests on a treaty or an EU directive. The group’s tax teams then monitor certificate validity and refund deadlines.
Relief obtained two years after payment doesn’t have the same cash-flow value as relief granted on the payment date.
A FASTER Answer
The EU already adopted part of the administrative infrastructure. The FASTER Directive, which takes effect in 2030, requires member countries to issue digital tax residence certificates, normally within 14 calendar days, and to recognize certificates issued by other member countries. It also provides for relief at source and quick refunds, supported by financial intermediary checks and reporting. Its quick-refund procedure has a 60-day processing period measured from the end of the application window, subject to the directive’s conditions.
FASTER’s expedited procedures chiefly cover dividends on publicly traded shares and interest on publicly traded bonds, where a member country chooses to include them.
Ordinary intragroup payments don’t automatically enter that system. The residence certificate, however, has broader reach: It can prove tax residence for companies as well as individuals. Corporate claims need a proportionate way to verify those additional facts, as they can’t, by themselves, prove beneficial ownership, a qualifying holding or other conditions for an exemption.
Route Before 2037
Member countries could simplify the administration of current relief without anticipating the outcome of negotiations on the proposal. They should:
- Accept digital residence evidence where current law permits
- Identify a limited and predictable set of documents for recurring corporate payments
- Allow valid evidence to be reused
- Publish clear decision and refund timelines, measure delays, and request additional proof where the facts warrant it.
EU-level coordination could make these practices more consistent across borders. Portugal illustrates why the legal basis matters. The Portuguese tax authority lists different forms for treaty relief at source and for refunds on different types of income. These treaty forms are distinct from the procedures for exemptions under the Parent-Subsidiary Directive and the Interest and Royalties Directive. For a cross-border group, identifying the appropriate route is itself part of obtaining the relief to which it may be entitled.
Simplification doesn’t need to weaken control. In its Santander judgment, the European Court of Justice accepted that, under certain conditions, a nonresident pension fund could be required to provide a certified declaration to obtain an exemption at source. The court rejected making that declaration the sole form of proof for a refund.
The case doesn’t decide the treatment of every intragroup payment, but it illustrates a useful principle: Documentary demands should be proportionate to the decision being made, and refund authorities should consider other reliable evidence.
Immediate Actions
Multinational groups can map recurring EU dividend, interest and royalty flows, distinguish under the Parent-Subsidiary Directive or the Interest and Royalties Directive claims from treaty claims, assign responsibility for eligibility checks before payment, and keep dated evidence of residence, ownership and other relevant conditions.
Groups should record how long refunds actually take, and where documents are repeatedly requested. That information strengthens internal controls and shows policymakers what delay costs in practice.
The European Commission has proposed a cleaner system for 2037, and FASTER supplies tools for quicker verification from 2030. The immediate task is to make current relief less dependent on repeated submissions and uncertain waiting times. Europe has already identified the problem, built part of the solution, and proposed removing many of the underlying formalities. The case for waiting until 2037 is increasingly difficult to justify.
The author used AI to draft a portion of this article.
This article does not necessarily reflect the opinion of Bloomberg Industry Group Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.
Author Information
Diogo Gomes is manager of the tax department at BDO’s Lisbon office.
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