Authorised Intermediaries

Jul 28, 20140 comments

The Tax Barriers Business Advisory Group (‘T-BAG’) identified ten principles that could be taken forward by the EU Member States and which addressed them difficulties of the current model of Authorised Intermediaries. In this podcast, Ross McGill discusses these in more detail.

The ten principles that I refer to would, if implemented, see a consistent homogenous and efficient tax processing landscape:

      1. Member States agree a common standardised “Authorised Intermediary” Agreement (“AIA”), which may be entered into between a financial intermediary and a Member State.
      2. AI Agreements would provide rules for the conducts of (i) documentation of beneficial owners, (ii) application of relief at source on payments, (iii) withholding, (iv) information reporting and (v) control and oversight;
      3. Member States agree a common form and distribution mechanism (e.g. web site) for Guidance on the application of treaty benefits to different types of beneficial owner on which an AI may rely, subject to the understanding that such guidance does not over-rule a Member State’s ability to question any specific case for a claim of treaty entitlement. It is envisaged that existing mechanisms for clarification of individual cases would still be available;
      4. The identification of beneficial owners to be permitted by AIs through the mechanism of (i) TINs issued by the beneficial owner’s home State, (ii) application of the KYC rules of the AI’s home State, to the extent that the source State accepts the degree to which, in its view, KYC rules establish beneficial ownership and (iii) agreement by Member States to the development and use of a common and electronically transmissible self-certification of residency (“Investor Self-Declaration” or “ISD”). To the extent possible, the system should permit the use of Powers of Attorney (“PoA”) to allow AIs and authorised third parties to facilitate any additionally required documentation;
      5. Provided the documentation and identification rules are met, AIs would be permitted to make (or instruct) payments to eligible beneficial owners net of the appropriate treaty rate of withholding tax on pay date;
      6. Liability for under-withholding and/or incorrect documentation of beneficial owners should lie (i) with the beneficial owner (for incorrect or fraudulent representations), (ii) the AI for processing errors and (iii) the Source Member State for technical issues related to treaty eligibility, the latter being minimised through the clear Guidance proposal.
      7. AIs servicing beneficial owners directly would provide annual information reports (i) to the source State at beneficial owner level of disclosure and (ii) upstream at pooled level (by withholding rate applied) to other AIs in the payment chain. Such reports to be electronic and to a format standardised between Member States e.g. XML;
      8. Where a source country receives information reports from an AI and wishes to query the eligibility of any beneficial owner, Exchange of Information rules would be applied to permit the source country to apply directly to the home country using the TIN of the beneficial owner;
      9. Under the terms of an AI agreement, AIs would be subject to a choice of internal review, certified by a responsible officer and subject to appropriate penalties, or external oversight by an approved independent third party by means of an Agreed Upon Procedure” (“AUP”) whose report would be available to the Source Member State. Governments would retain the right to undertake spot checks in both cases.

For those beneficial owners who were unable to meet the relevant documentation standards prior to pay date, but where they can still prove eligibility under a treaty, Member States agree to develop a standardised, machine readable tax reclaim form capable of being delivered electronically.


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