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The ISLA Tax Working Group advocates on tax matters relevant to the Securities Lending and Borrowing industry to ensure the smooth functioning of our markets. The working group regularly reviews issues arising from proposed changes in legislation and guidance across all EU Member States, mostly with regards to withholding taxes (WHT) on dividends. ISLA liaises with EU Tax authorities and regional Ministries of Finance, as well as European and global bodies such as the European Commission and the Organisation for Economic Co-operation and Development (OECD).
In Europe, the power to introduce, remove or adjust taxes remains in the hands of the Member States however, the European Commission is tasked with ensuring harmonisation to promote the Capital Markets Union and eliminate tax obstacles to cross-border economic activity for a stronger, fairer, and more efficient single market. The European Commission is also responsible for working to prevent tax evasion and tax abuse as well as promote better cooperation between tax administrations.
Any EU legislation on tax must be unanimously adopted by the Member States. The European Parliament also has the right to be consulted on tax matters. Provided it complies with EU rules, each Member State is free to choose the tax system it deems most appropriate.
The term ‘withholding tax’ refers, for example, to an instance where an investor resident in one EU Member State is liable to pay tax on the interest or dividends earned in another Member State. This is often the case for cross-border investors. In such a scenario, in order to avoid double taxation, many EU Member States have signed double taxation treaties, which avoid the same individual or company being taxed twice. These treaties allow a cross-border investor to submit a refund claim for any excess tax paid in another Member State.