PensionsEurope has told the European Commission it strongly supports the need for EU action to make withholding tax refund/relief procedures more efficient, saying the added value would be high.

The Brussels-based pension fund umbrella association was responding to a public consultation on the Commission’s initiative to introduce a common EU-wide system for withholding tax claims on dividends and interest payments within the bloc.

It said the “high added value” of action at an EU level would be the end of fragmented withholding tax systems across the EU.

According to the Commission, the most recent publicly available data from 2016 suggests costs related to withholding tax refund procedures, foregone tax relief and opportunity costs are estimated to a value of €8.4bn annually.

In its feedback, PensionsEurope expressed a preference for a harmonised relief-at-source system, as it has done for some time, but also said there are many other recent proposals that the Commission should thoroughly consider.

The pension fund association has previously proposed to the Commission to establish an EU tax register of recognised pension institutions so that member states can reciprocally and automatically recognise them.

The association also said that as a long-term solution, the introduction of a withholding tax blockchain solution within the EU could be considered “to move to a more ‘real time’ handling of the tax whereby simultaneously the risk on tax abuse could be appropriately mitigated”.

It also said one could consider a system with authorised intermediaries at EU level, as applied in the US withholding tax system and TRACE, to create a relief-at-source system across the EU capital market.

PensionsEurope also reminded the Commission that in many countries pension institutions invest cross-border via specialised investments funds and/or vehicles to increase the economies of scale, and that it was important to ensure a tax-neutral treatment of these investment structures as well.

Another general remark was about establishing a cross-border investment-friendly tax environment in the EU, which the association said not only required removing unfair tax treatment but also introducing tax incentives.

It pointed to a 2020 report from the OECD on financial incentives for funded private pension plans, and to recommendations from the High-level expert group on pensions that member states should reserve tax and/or financial incentives in both the saving and pay-out phases for supplementary pensions meeting minimum quality requirements.

The consultation runs until 26 June.

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