BERLIN: A recent report claims that Germany has lost almost EUR32bn in tax revenue from taxpayers claiming multiple tax refunds on securities transactions, through an arrangement which has since been outlawed by parliament.
According to the results of a study by professor Christoph Spengel, Chair of Business Administration and Taxation at the University of Mannheim, which were publicized by German daily De Zeit and broadcaster ARD, Germany has been deprived of EUR31.8bn since 2001 as a result of “cum/cum” and “cum/ex” trades by financial institutions.
In a cum-cum trade, a German financial institution would borrow shares in a company from a foreign investor just before the dividend record date, receive the dividend payment, claim a refund of dividend withholding tax before passing the share back to the foreign investor, in addition to the payment of a borrowing fee and a portion of the tax refund.
In a more controversial variant of this scheme, financial institutions would claim multiple tax refunds by selling short and repurchasing financial securities. It was said that these cum/ex trades predominately took place in London, and the practice became the subject of a judicial investigation before being outlawed in 2012. Cum/cum trades were then banned in 2016.
According to professor Spengel, EUR24.6bn in tax revenue was lost as a result of cum/cum trades, and an additional EUR7.2bn lost a result of cum/ex trades.
According to professor Spengel, this amounts to “the biggest tax scandal in the history of the Federal Republic [of Germany].”
