Annexes to COM(2017)147 - Accelerating the capital markets union: addressing national barriers to capital flows - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2017)147 - Accelerating the capital markets union: addressing national barriers to capital flows. |
|---|---|
| document | COM(2017)147  |
| date | March 24, 2017 |
The expert group could contribute to possible CMU-related initiatives for the development of innovative solutions to improve SMEs’ knowledge and support them in accessing capital market sources of finance.
3.3.Other issues
The Commission notes that some Member States have referred to barriers related to banking, including possible barriers to the movement of liquidity within cross-border banking groups, which NCAs have imposed on top of existing prudential requirements. Such issues should disappear at the latest by 1 January 2018, with the full introduction of the liquidity coverage ratio at a rate of 100 %, as regularly monitored by the European Banking Authority. 19 Some Member States have also mentioned the difficulty that national supervisors have in granting cross-border waivers from liquidity requirements to an institution and its EU subsidiaries, and supervising them as a single liquidity sub-group. This issue is being discussed in other fora.
4. Ex post barriers
4.1.Differences in national insolvency regimes
The latest CMU Communication 20 stressed the negative impact that the differences and inefficiencies in some national insolvency regimes have on cross-border investment and lending. These generate legal uncertainty, additional costs and pose barriers to the efficient restructuring of viable companies, including cross-border groups, in the EU.
The Commission invites the Member States and the European Parliament to support the recent Commission proposal on restructuring and second chance 21 and to consider its provisions in the light of the objectives agreed for the deepening of the internal market.
In addition, these national disparities impact the banks’ lending, as they face different situations in terms of delays, costs and value recovery. In order to compile a detailed and reliable picture, the Commission has launched an initiative to benchmark national loan enforcement regimes, including insolvency arrangements.
The benchmarking exercise, with results expected in summer 2017, will assist Member States seeking to increase the efficiency and transparency of their insolvency and loan recovery regimes.
4.2.Discriminatory and burdensome procedures for withholding tax relief
Capital market investors and Member States have repeatedly identified withholding tax (WHT) relief procedures as a major deterrent to cross-border investment. As pointed out by the ECOFIN Council of November 2015 in support of CMU initiatives, there is a need for ‘pragmatic solutions to longstanding tax obstacles such as double taxation linked to current withholding tax arrangements’.
Given this political mandate, the expert group discussed the nature of the problem and existing best practices. It took note of the view that a well-functioning CMU needs to tackle this matter, while acknowledging that any steps beyond mapping relevant barriers and best practices should be taken in the appropriate tax working groups.
To avoid double taxation of cross-border investment, most bilateral tax treaties provide for WHT refunds. In practice, however, investors face complex, demanding, resource-intensive and costly procedures.
In addition to having to prove their place of residence through complex documentation requirements, investors active in the EU have to complete up to 56 separate national forms. In many Member States, it is not possible to complete the procedure online. Moreover, investors regularly have to process claims through a local agent and national practices prevent them from getting help from their home financial institution.
As a result, the length of time that several Member States take to pay out reclaims can be counted in years, which is unacceptable considering that other Member States manage to provide refunds within a few weeks. 22
Tackling burdensome WHT refund procedures is all the more urgent as they affect all kinds of financial instruments (bonds, shares and derivatives) and stakeholders. Excessive compliance costs prevent retail investors from making claims and give rise to substantial administrative expenditure for institutional investors. In January 2016, the overall cost of WHT refund procedures was estimated at EUR 8.4 billion per year in foregone tax relief (due to complex compliance procedures and costly expert advice), the costs of reclaim procedures and opportunity costs (delayed refunds mean that the money cannot be used for other purposes). 23
In its 2009 Recommendation on withholding tax relief procedures, 24 the Commission asked all Member States to implement well-functioning reliefatsource procedures or, where this is not possible, to establish quick and standardised refund procedures.
A study accompanying the 2009 Recommendation showed that simplifying WHT relief procedures has positive spill-over effects. Finland and Ireland confirmed that, after implementing relief at source, refund processes worked more reliably and efficiently, reduced administrative burdens and freed up resources — both for tax administrations and financial intermediaries. Similarly, Germany and the Netherlands reported that new electronic systems have made their control mechanisms more effective and have cut tax evasion significantly in source countries.
While improvements have been made, the general status quo remains unsatisfactory since solutions are well-known, and have been successfully put in place in some Member States. Based on the mapping work in the expert group, the figure below proposes a list of nine best practices (in addition to relief at source) and one Member State particularly well placed to share its experience for each of them.
Quick refund
| Best practice | Member State |
| ‘Quick refund’ procedure in place | Netherlands |
| Effectively provide refund in a short period (< 6 months) | Slovenia (7-30 days) |
Classic reclaim procedure
| Best practice | Member State |
| Simplify documentation requirements (e.g. allow proof other than a certificate of tax residence, extend the certificate’s validity to more than a year) | Sweden (no additional information needed, but audit procedures in place) |
| Set up a single point of contact for handling refund claims | UK (for large businesses) |
| Replace claim forms by a single document | Cyprus |
| Make claim forms available online | Portugal |
| Allow completion of the whole refund process online | Finland |
| Allow foreign financial institutions to handle the WHT procedure (i.e. no need to have a local agent) | Estonia |
| Allow foreign financial institutions to claim relief on behalf of their clients | Lithuania |
The Commission invites the Member States' tax experts to assess and confirm, where appropriate, the relevance of the nine WHT best practices that were identified in a joint roadmap. Each Member State would then be expected to make commitments on which best practices it wants to implement by 2019. Individual progress could be monitored in the form of a scoreboard to be discussed with the Member States.
The Commission proposes that this work be taken forward by relevant tax working groups, while the expert group would be regularly informed of progress and play a supporting role in view of the importance of the issue for CMU.
The Commission will also work with national tax experts on a code of conduct on WHT relief principles. In line with the CMU action plan 25 and the recent Communication 26 the best practices identified by the expert group will be the basis to draft a code of conduct on more efficient WHT relief/refund principles.
The expert group will play a supporting role and be regularly informed of any relevant progress.
5. Conclusion and summary of proposed actions
This collaborative process with the Member States has focused on barriers that are in areas of national competence, which can be addressed by voluntary action and on which Member States are willing to work together. The barriers assessed were decided on the basis of their nature with a view to ensuring that cumulative actions at national level can trigger positive effects on cross-border investment.
While these barriers individually impact cross-border investment to a lesser or greater extent the assessment carried out so far was not underpinned by an economic assessment of the impact of each the barriers identified at EU or national level.
Based on how often they were mentioned in replies to consultations and by the Member States in the expert group, the barriers can be divided as follows, from the least (x) to the most often reported (xxx).
| Gravity of the barriers (based on reporting incidence) | x | xx | xxx |
| Marketing requirements | xxx | ||
| Administrative arrangements | xx | ||
| Regulatory fees for cross-border marketing | x | ||
| Different approaches to crowdfunding | xx | ||
| Residence requirements | xxx | ||
| Insufficient financial literacy | xx | ||
| Differences in insolvency regimes | xxx | ||
| WHT relief procedures | xxx |
In view of its commitment to accelerate reforms to create a CMU, the Commission invites Member States to discuss and agree on the actions below, which should become a joint (Commission/Member States) roadmap on national barriers to capital flows.
This process does not prevent the Commission from considering possible legislative proposals or other tools for addressing the barriers identified.
In the context of the CMU, the Commission intends to continue consulting all categories of interested parties, including industry and institutional stakeholders (such as the European Investment Bank and the European Investment Fund) to gather as many informed views as possible on the existing barriers and possible solutions. The CMU mid-term review will also provide input in this regard.
The Commission, in cooperation with Member States, shall assess the impact of the actions agreed in the Roadmap on cross-border investment, in the context of the progress towards the accomplishment of the CMU. The outcome of this assessment shall be taken into account when evaluating the need for further action. The Commission does not see the list of actions proposed below as exhaustive, and invites Member States in the expert group to identify other barriers in CMU-relevant areas. Possible topics include national reporting requirements imposed on top of existing EU legislation; barriers to the online distribution of investment funds; barriers faced by smaller institutional investors which are not eligible for a MiFID passport; or barriers related to the distribution of retail financial products.
Commission Roadmap of proposed actions
| Topic | Action | Actor | Possible timing |
| Investment funds | Continue reviewing national rules, in view of promoting common understanding and regulatory convergence of pre-marketing and reverse solicitation | Member States (MS) and ESMA | Q4 2017 |
| Further map administrative arrangements | Expert group (EG) | Q4 2017 | |
| Ensure that all fund notification-related fees are published in a comprehensive and user-friendly manner on a single website | MS | Q4 2017 | |
| Consider setting up a single public domain for feerelated information, in the form of a comparative website or a central repository | EG with ESMA | Q4 2017 | |
| Pension funds | Identify the drivers in cross-border investment, promote best practices in the MS and raise awareness of new opportunities under the Investment Plan for Europe, involving national promotional banks | Sub-group of interested MS, with the participation of the pension fund industry | Q3 2017 |
| Residence requirements | Remove residence requirements from legislation and administrative practices in respect of managers residing in the EU, where unjustified and disproportionate | MS | Q4 2017 |
| Financial literacy | Start exchanging best practices on financial literacy programmes, taking into account the cross-border dimension | Sub-group of interested MS chaired by Croatia | Q2 2017 |
| Contribute to possible CMU initiatives for the development of innovative solutions to increase SME knowledge and support them in accessing alternative sources of finance | EG | 2018 | |
| WHT | Assess and confirm where appropriate the relevance of the nine WHT best practices identified and agree on a list that could be reflected in a scoreboard | MS tax experts | Q2 2017 |
| Discuss the way forward in a tax working group, with a view to each MS committing to a list of best practices to improve the status quo by 2019 | MS tax experts | Q3 2017 | |
| Work with national tax experts on a code of conduct on WHT relief principles | MS tax experts | Q4 2017 |
(1) The SRSS was established in July 2015 to provide technical support to Member States, upon their request, in pursuing growth-enhancing structural reforms. The Commission has proposed a Structural Reform Support Programme (SRSP) in order to strengthen the overall capacity of Member States to prepare and implement institutional, structural and administrative reforms. This includes providing technical assistance to Member States in the area of capital markets development.
(2) In particular, the CMU Green Paper consultation ( http://ec.europa.eu/finance/consultations/2015/capital-markets-union/index_en.htm ), the consultation on the call for evidence ( http://ec.europa.eu/finance/consultations/2015/financial-regulatory-framework-review/index_en.htm ) and the consultation on the cross-border distribution of investment funds ( http://ec.europa.eu/finance/consultations/2016/cross-borders-investment-funds/index_en.htm ).
(3) Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010, OJ L 171, 1.7.2011, p. 1.
(4) Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS), OJ L 302, 17.11.2009, p. 32.
(5) The public consultation ended on 9 October 2016 ( http://ec.europa.eu/finance/consultations/2016/cross-borders-investment-funds/index_en.htm ).
(6) Reverse solicitation is a practice largely confined, but not strictly limited, to AIFs and professional investors in particular.
(7) Proposal for a Regulation amending Regulation (EU) No 345/2013 on European venture capital funds (EuVECA) and Regulation (EU) No 346/2013 on European social entrepreneurship funds (EuSEF).
(8) In line with Article 18 of the Directive 2003/41/EC (IORP) and Article 132 of the Directive 2009/138/EC (Solvency II).
(9)
The Commission launched a study to identify potential discriminatory tax treatment of cross-border investments by pension funds and life insurance companies.
(10) http://cipartners.dk/
(11) For example, the European Investment Fund — national promotional institutions’ Equity Platform; http://www.eif.org/what_we_do/equity/NPI/index.htm
(12) Strengthening European investments for jobs and growth: Towards a second phase of the European Fund for Strategic Investments and a new European External Investment Plan, COM(2016) 581 final, ( http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52016DC0581&from=en ).
(13)
Crowdfunding in the EU capital markets union (SWD(2016) 154 final); ( http://ec.europa.eu/transparency/regdoc/rep/10102/2016/EN/10102-2016-154-EN-F1-1.PDF ).
With the aim of improving SMEs' financial literacy on crowdfunding in its different forms, the Commission has developed an EU guide available at https://ec.europa.eu/growth/tools-databases/crowdfunding-guide_en
(14) For example, The European alternative finance benchmarking report, University of Cambridge, 2015; ( http://www.jbs.cam.ac.uk/fileadmin/user_upload/research/centres/alternative-finance/downloads/2015-uk-alternative-finance-benchmarking-report.pdf ).
(15) See Financial education in Europe: trends and recent developments, OECD Publishing (2016), Paris,
( http://dx.doi.org/10.1787/9789264254855-en ).
(16) See the 2014-2020 Programme for the Competitiveness of Enterprises and SMEs (COSME) .
(17) Eurobarometer (2012), http://ec.europa.eu/internal_market/finservices-retail/docs/policy/eb_special_373-report_en.pdf
(18) This work will be done in a sub-group of Member States led by Croatia.
(19)
Article 412(5) of Regulation (EU) 575/2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (CRR).
(20) See Commission Communication of 14 September 2016: Capital Markets Union — accelerating reform ( http://ec.europa.eu/finance/capital-markets-union/docs/20160913-cmu-accelerating-reform_en.pdf ).
(21) On 22 November 2016 the Commission presented a proposal for a Directive on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU (COM(2016) 723).
(22)
"Workable solutions for efficient and simplified fiscal compliance procedures related to post-trading within the EU" Report by the Tax Barriers Business Advisory Group, 2013 ( http://ec.europa.eu/info/publications/report-tax-barriers-business-advisory-group-tbag_en )
(23) Source: European Commission's Joint Research Centre.
(24) See Commission Recommendation of 19 October 2009: On withholding tax relief procedures ( http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32009H0784 ).
(25) See Commission Action Plan of 30 September 2015: Building a Capital Markets Union ( http://ec.europa.eu/finance/capital-markets-union/docs/building-cmu-action-plan_en.pdf ).
(26) See Commission Communication of 14 September 2016: Capital Markets Union — accelerating reform ( http://ec.europa.eu/finance/capital-markets-union/docs/20160913-cmu-accelerating-reform_en.pdf ).