The OECD has published a policy response note dated 6 September 2021 on Tax administration responses to COVID-19: Administrative measures to facilitate withholding tax relief claims, including a section on best practice recommendations as follows:
5. Best practice recommendations
The COVID-19 health crisis is likely to still take time to be fully resolved. In this light, and considering the growing backlog of refund claims to be addressed by tax administrations and the potential permanent loss of relief for some taxpayers, it could be considered to adopt measures to ensure the ongoing effectiveness and integrity of the withholding tax relief claim processes, to the benefit of both tax administrations and investors.
Against this background, this section sets out some temporary measures that residence and source countries may consider adopting to address the issues identified above. It is of course acknowledged that the mix of measures for a country will depend on the type of withholding tax procedures it has in place, and whether the temporary measures can be put in place through administrative procedures, or require a change to the law.
i. Grace periods for tax residence certificates
Source countries which ordinarily require certificates of residence issued in the year of the relevant payment, could consider introducing grace periods that would allow investors to make claims for relief at source or reclaims using the most recent certificates of residence that they have, until such time as the adverse effects of the COVID-19 health crisis on the tax administration have passed and the backlog in certificate requests has been evacuated.
A number of countries have already put in place temporary grace periods during 2020 to allow foreign investors to make claims using their most recent prior year residence certificates. In order to mitigate potential risks of abuse, jurisdictions could complement such measures with additional conditions. For example, jurisdictions could prescribe the duration for which a tax residence certificate is valid to certify tax residence for withholding tax relief purposes, require that a tax residence certificate for the relevant tax year is lodged in due course, or require evidence that such certificate was already requested based on a reasonable expectation that it should be granted. Further, some jurisdictions have instructed caseworkers to exercise discretion and increased flexibility if the applicant is unable to deliver the required documentation on time due to the pandemic.
ii. Reasonable reliance on account information
Source countries which ordinarily require withholding agents to be in possession of a current residence certificate in order to reduce withholding rates to those set out in an applicable tax treaty could consider allowing withholding agents in their jurisdiction to apply the treaty rate of withholding where they had done so for a particular taxpayer in the prior year, the financial institution with whom the taxpayer holds its investments certifies that there is no material change in the account related information (e.g. AML/KYC information) which would indicate a change of tax residency and the tax payer self-certifies their tax residency or that there has been no such change. In many instances the financial institution with whom the taxpayer is holding the securities will already have much of this information, for example where it is a Reporting Financial Institution under the Common Reporting Standard.
iii. Electronic documentation
Source countries could consider accepting digital tax residence certificates, as well as digitally-signed and certified tax relief claim forms, either as a temporary or a permanent measure.
Some countries have already introduced digital alternatives to the acceptance of physical (paper) for the claiming of withholding tax relief, including scanned or electronically-signed relief forms and tax residence certificates, on either a temporary or permanent basis. In rolling-out such procedures, many have also introduced security-enhancing measures to prevent fraud and provide comfort to their counterparty tax administrations. Others have committed to accepting electronic documentation pending the receipt of the original documents.
In addition, some residence jurisdictions have relied upon or expanded the use of existing e-services portals to facilitate the streamlined issuance of tax residence certificates, including in electronic form.
iv. Suspending apostilisation and other similar requirements
Source countries that require apostilisation, notarisation, or legalisation of documentation for the application of withholding tax relief could consider suspending this requirement.
v. External communications
Countries implementing any measures to alleviate the impact of COVID-19 on the withholding tax relief process should announce these publicly to ensure that withholding agents, custodians and investors are aware and thus able to apply the applicable rules on a timely basis.