The EU FASTER Directive is coming - but what are the implications for Swiss banks?

What are the benefits of FASTER?

Investors, and in particular smaller ones, are often not claiming treaty benefits due to various factors such as complex procedures (largely still paper based), costs and lengthy processing times. The European Commission estimates that on average about EUR 6bn of potential withholding tax refunds are forgone by cross-border investors holding shares and bonds of EU companies and governments. To tackle this well-recognised issue, the FASTER directive’s key goal is to reduce double taxation on cross-border investments into EU Member States by making the withholding tax relief procedure in the EU more efficient for non-resident investors, whilst protecting the interests of national tax authorities.

These objectives are to be achieved by:

• Creating two ’fast-track’ relief procedures complementing the existing national refund processes. There will be a ’relief at source’ procedure and a ’quick refund’ procedure, which will make the relief process faster and more harmonised across the EU.
• Introducing a common EU digital tax residence certificate (eTRC) that investors will be able to use in order to benefit from the fast-track procedures for obtaining relief from withholding taxes.
• Setting a standardised reporting obligation for financial intermediaries (such as banks or investment platforms), which will make it easier for national tax authorities to detect potential fraud or abuse.
  

What are the implications for financial institutions?

Member States will have to establish national registers where financial intermediaries can register to be certified. To simplify this registration process, the Commission will create a ’European Certified Financial Intermediary Portal’. This portal will act as a central dedicated website where the national registers will be accessible. Enrolment will be required in the national register of every Member State from which the financial institution receives payments subject to withholding tax.

Once registered, financial intermediaries will need to provide information to the relevant tax authorities so that transactions can be traced. It has to be emphasised that the reporting obligations resting on the participating financial institutions will be burdensome, requiring separate filings for each dividend or interest distribution to which one of the fast-track procedures is applied, and all within 60 days following the month of the payment date.

On the other hand, the digitalisation of the tax residence certificate and the standardisation of reporting obligations and refund requests will allow financial intermediaries to automate their processes, saving time and (in the longer run) money. Certified financial intermediaries will collect the electronic tax residency certificate of their investors (or the appropriate proof of tax residence for a non-EU country) and verify this information against their own records. They will also need to collect a statement indicating that the investor is the beneficial owner of the income and also that they have not engaged in any financial arrangement that is linked to dividend or interest payment on the underlying securities. For each transaction for which either the relief at source or the quick refund procedure is applied, financial intermediaries will need to report the necessary information to the relevant tax authorities so that the transaction can be traced and refunds processed by tax authorities within the given deadline of 60 days.

Can Swiss financial institutions join FASTER?

The answer is yes, as the directive opens the possibility for non-EU financial institutions to join the system. The registration will be possible if (a) the non-EU country where the bank is tax resident does not appear on the EU list of non-cooperative jurisdictions, (b) the bank is licensed to provide its services under a local legislation that is deemed equivalent to EU regulations, and (c) the bank is subject to AML rules comparable to those in the EU. For a Swiss-based bank, these conditions should be fulfilled, although the eventual assessment will be in the hands of the Member State in which the bank seeks registration.
An additional point to note is that, for financial institutions resident for tax purposes in a non-EU jurisdiction where there is no convention that provides assistance in the collection of (withholding) taxes, the Member State to which the registration request has been submitted may require sufficient and proportionate guarantees to ensure the recovery of any withholding tax that may have been improperly reduced or refunded. Swiss banks could be faced with such demands.

What next?

For Swiss based banks, the good news is that they can join the FASTER regime. This will allow them to offer faster withholding tax refunds, or even relief at source, to their clients investing in EU shares and, depending on Member States, in EU bonds. These benefits come, however, with a price tag in the form of (often multiple) registration(s), collection of additional documents from clients and implementation of new IT processes allowing to comply with the complex reporting obligations. A careful cost-benefit analysis will therefore be required.

And what about MiKaDiv?

MiKaDiv (Mitteilungsverfahren Kapitalertragsteuer auf Dividenden aus Aktien und Hinterlegungsscheine) is the German precursor of FASTER and will come into force as of 1 January 2027. MiKaDiv introduces detailed disclosure and reporting obligations on German dividends. It aims to make withholding tax processes more digital and thus more transparent, and reduce susceptibility to abuse, as evidenced in recent years particularly in the context of cum-ex and cum-cum structures.

The regime defines data and technical requirements that non-German custodians must implement to remain operationally connected to German relief at source and reclaim processes. If you want to learn about the implications of the new rules, recent regulatory developments and best practices for implementation, please join our MiKaDiv breakfast events in Zurich (9 June) or Geneva (23 June) where we will discuss:

• MiKaDiv’s relevance for non-German custodians when serving German and non-German resident clients
• Information that must be disclosed in the custody chain
• Consequences of incorrect or incomplete information disclosure for non-German intermediaries and their clients
•  Implementation actions
• Outlook on EU FASTER

By attending, you will ensure that you are equipped with the knowledge to navigate these new requirements and understand their impact on your organisation and clients.

👉 Sign up here: Registration

Authors

• Bernhard Schopper, Partner, Swiss Tax & Legal
• Petrit Ismajli, Partner, Financial Services Tax