The European REITs market, as well as the EU Member States’ (MS) real estate and capital markets more broadly, have significantly developed over the last few decades. There are 13 REIT regimes in the EU. When comparing individual country REIT regimes in the EU, we notice many similarities in their look and function. Albeit they present differences in detail, their general framework is to a large extent identical, and they are slowly becoming harmonised. As their conditions and requirements are already similar, if not equivalent, there is a ‘common understanding building around the harmonisation of REIT regimes, leading the way to a mutually recognised REIT regime within the EU.
Hence, the foreign REIT is treated as a foreign corporate generating directly, or through a domestic subsidiary, income from real property. This leads to unequal treatment of REITs, depending on their nationality, thus discriminating the foreign REIT while excluding it from the tax treatment compared to a domestic REIT. Such a different treatment on the grounds of nationality is violating EU law, i.e., the freedom of movement (Art. 49 EU Treaty).
Since a so-called EuroREIT is an EU-wide concept (like the Societas Europaea (SE)), there should be no difference in treatment according to whether a MS provides for a local REIT regime. Thus, a REIT established in a MS shall benefit from a tax transparent treatment at its level for income derived in a home state, in the same way a REIT established under the host state would.
Therefore, investments made cross-border by a ‘foreign’ REIT must not be taxed at its REIT level.
However, the proposal above is not about allocating an amount equalling a withholding tax that would have been levied in the host state on income derived from a foreign REIT. Rather, the concept is based upon a true flow-through model where the foreign REIT finally distributes dividends to its shareholders, whether they be residents in the home state of the REIT or resident in another MS.