On 23 October 2007 the European Commission’s Fiscal Compliance expert group (FISCO Group) issued a report setting out solutions to fiscal compliance barriers related to clearing and settlement of cross border securities transactions.
The key conclusions in the report on withholding tax procedures were:
- That at source relief procedures are the best methods to improve the present situation because of the optimised cash flow they offer to investors.
- Many of the present administrative and efficiency problems can only be resolved by shifting withholding responsibilities to intermediaries, and by allowing all intermediaries in the custody chain to assume withholding responsibilities or to take responsibility for granting withholding tax relief.
- The withholding tax relief procedures differ substantially between the Member States. To solve these problems, it is necessary that a harmonised withholding tax relief procedure be introduced.
- Even though relief at source is the preferred relief method, there is a clear need also for efficient refund procedures.
The FISCO Group also made several recommendations as regards transaction tax procedures. In particular, in relation to the UK the FISCO Group stated that it was necessary to clarify the definition of clearance system and the criteria used. It would then be possible to consider why some systems are regarded as meeting the definition and others are not. This would then result in a level playing field amongst all settlement service providers.
According to the press release that accompanied the report the Commission will now promptly consider concrete actions including a timeframe on the basis of the work of the FISCO Group.