Joint Letter on Challenges and Practical Solutions for Global Withholding Tax Relief Procedures in Light of COVID-19

Mr. Pascal Saint-Amans
Director, Centre for Tax Policy & Administration
Organisation for Economic Co-operation and Development
2 rue André Pascal
75016 Paris
France

Mr. Paolo Gentiloni
Commissioner for Economic and Financial Affairs
European Commission
Rue de la Loi / Wetstraat 200
1049 Brussels
Belgium

Dear Mr Saint-Amans / Dear Commissioner Gentiloni,

The undersigned associations1 are writing to you to draw the attention of the Commission and the OECD to the negative impact of COVID-19 across the globe that is significantly affecting the ability of cross-border portfolio investors to access withholding tax relief they are entitled to. We would very much appreciate if a copy of this letter could be shared with the 27 EU Member States and the 53 members of the Forum on Tax Administration.

The problem primarily arises from the challenges of moving the paper documentation needed to obtain relief at source or to process reclaim submissions, including physical documents with wet ink signatures. A related problem involves the slow-down or cessation of production of needed documents (e.g. certificates of residence) and information due to changed working arrangements in government offices and other organisations.

There is an increasing state of uncertainty regarding tax relief in a number of countries. Investors are reviewing arrangements as part of their contingency plans in respect of the movement of physical paper. The impact on international and regional banks and their clients cannot be overestimated. The strains on tax administrations are also significantly growing, as reclaims requiring processing will mount substantially due to missed relief at source.

To help the global economy weather the impact of these uncharted and challenging times arising from COVID-19 we, the undersigned industry groups, see a need to urgently adapt the relationship between banks, tax authorities and their regulators in light of the current circumstances.

The collection of withholding tax relief pursuant to a relevant double taxation treaty (DTT) or under a country’s domestic law is typically reliant on the submission of physical documentation. In practice this requires the moving of original physical documents from, for example, the end investor and/or the investor’s tax authority through any intermediaries to the global custodian and on to the local sub-custodians, paying agents, or tax authorities in the source country of income.

We note with approval the suggestions posted on the OECD website on 20 March 2020 regarding responses to the COVID-19 crisis tax administrations could take to ease burdens on taxpayers.2 Building on those suggestions with specific reference to the application of withholding tax relief, this letter asks for steps to be taken to encourage a relaxation of certain existing requirements in Member States and beyond. The aim is to eliminate or minimise challenges in the current situation, taking into account the need for international co-operation.

The approach requires flexibility in the need for reliance on physical documents, including consideration of the suspension of the majority of existing time limiting restrictions (e.g. filing and statute of limitations periods).

We outline below a number of challenges with the existing requirements and propose practical solutions which will also help avoid an increase of fraud.

Our observations and suggestions relate to:

• Authorising acceptance, by all parties in the chain, of electronic (scanned copy) tax documents and forms, with the further option for documents to be electronically affirmed (e.g. through use of digital signatures).
• Introducing a grace period through at least the third quarter of 2020 to allow withholding tax relief to continue (e.g. allowing withholding agents/paying agents and banks to rely on previously issued certificates of tax residency for investors).
• Having source country tax authorities agree to accept government-issued certificates of tax residency in electronic format.
  Eliminating the requirement for withholding tax reclaim forms to be certified by the tax authority of the investor’s country of residence.
• Eliminating the requirement for the apostillisation, notarisation, or legalisation of documentation required for the application of withholding tax relief.
• Removing the requirement for non-standard certificates of tax residency (for example, e.g. some jurisdictions require certificates to refer to specific sections of a double taxation treaty, or to be issued using the investment country’s template document).
• Extending the period for the filing of withholding tax and information reporting returns by issuers, paying agents, and withholding agents.
• Extending statute of limitation periods by six months, thereby allowing additional time for the submission of withholding tax reclaims.
• Extending deadlines for responding to information and documentation requests issued by tax authorities, whether in the context of audits of withholding tax relief claims or as further substantiation of withholding tax refund claims.
• Issuing clear guidance to clarify the ability of participants in the documentation chain to rely on the parameters recommended above.

We firmly believe that by taking the very concrete and practical steps recommended above, governments could prevent a functional disturbance in the process of obtaining prescribed withholding tax relief on cross-border investment flows. It could also help to avert a crushing backlog of refund claim submissions to be processed once tax authority operations return to pre-crisis levels.

We appreciate your consideration of our suggestions and any efforts you can make to promote the adoption of these recommendations by as many tax administrations around the world as possible. Please do not hesitate to contact Roger Kaiser at the European Banking Federation ([email protected]) if you would like further discussion or clarification of these recommendations.

Please accept our best wishes for the good health and safety of you and your colleagues in this challenging period.

Yours faithfully,

Rob Nichols
President and CEO, ABA

Adam Farkas
Chief Executive, AFME

Mary C. Bennett
Counsel, AGC

Mark Austen
CEO, ASIFMA

Hervé Guider
General Manager, EACB

Wim Mijs
Chief Executive Officer, EBF

Tanguy van de Werve
Secretary General, EFAMA

Gianluigi Gugliotta
Secretary General of ASSOSIM, on behalf of EFSA

Chris De Noose
Managing Director, ESBG

Hedwige Nuyens,
CEO, IBFed

Keith Lawson,
Deputy General Counsel, Tax Law, ICI Global

Anshita Joshi
Head of Tax, The IA