Twelve business groups have asked the OECD and the European Commission to remove obstacles to withholding tax relief on cross-border portfolio investments that have arisen as a result of the COVID-19 pandemic.
In an April 20 letter to Pascal Saint-Amans, director of the OECD’s Centre for Tax Policy and Administration, and EU Tax Commissioner Paolo Gentiloni, the American Bankers Association, the Asia Securities Industry and Financial Markets Association, the European Forum of Securities Associations, and several other groups highlighted documentation challenges faced by cross-border portfolio investors because of the pandemic. The groups asked that a copy of the letter be provided to the 27 EU member states and all 53 members of the OECD’s Forum on Tax Administration.
Typically, to be able to collect this type of relief under an income tax treaty or a country's domestic law, investors must submit physical documentation with their applications. “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,” the letter says. Furthermore, with government offices and other organizations changing their working arrangements, obtaining necessary documents like certificates of residence is becoming more difficult, it says.
The writers suggested several measures to make it easier to obtain withholding tax relief, including the acceptance of scanned copies of tax documents and forms that can be verified electronically, an extended deadline for investors filing withholding tax and information returns, and the waiver of a requirement that tax relief applications be notarized, legalized, or apostilled.
The letter acknowledges suggestions made by the OECD March 20 to provide tax administrations with more options to help taxpayers struggling because of the pandemic, and says the groups' proposals are meant to build on those suggestions.
“We firmly believe that by taking the very concrete and practical steps recommended . . . 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,” the letter says.
On April 3 the OECD secretariat published guidance regarding changes to the way cross-border employees are working during the COVID-19 crisis. It said the pandemic is unlikely to lead to changes in tax treaties' permanent establishment and tax residency provisions.