Eliminating withholding tax promotes cross-border investing and is consistent with the Savings and Investment Union. However, under the current proposal, it is primarily pension funds that invest directly that stand to benefit. This makes direct investing more tax-efficient than investing through a fund, at the expense of economies of scale and risk diversification. We therefore propose that regulated funds be eligible for the exemption, at least to the extent that their income is attributable to participants who themselves are entitled to the exemption.
In addition, we ask that the proposed anti-abuse provision in the Interest and Royalties Directive be reconsidered. As an alternative, we propose limiting this provision to transactions with related parties and excluding regulated investment funds.
