CumEx-Files explained

Location:Europe
Type:Tax evasion
Outcome:Loss of roughly $63.2 billion.

The CumEx-Files is an investigation by a number of European news media outlets into a tax fraud scheme discovered by them in 2017.[1] A network of banks, stock traders, and lawyers had obtained billions from European treasuries through suspected fraud and speculation involving dividend taxes. The five hardest hit countries may have lost at least $62.9 billion.[2] Germany is the hardest hit country, with around $36.2 billion withdrawn from the German treasury.[3] Estimated losses for other countries include at least €17 billion for France, €4.5 billion in Italy, €1.7 billion in Denmark and €201 million for Belgium.[4]

Method

The network stole several billion Euros from the treasury, through what Correctiv calls a "cum-ex" trade: The participants in the network would lend each other shares in large companies, so that to tax authorities there would appear to be two owners of the shares, when there was only one. The bank that was used in stock trading would then issue a "confirmation" to the investor that tax on the dividend payment had been paid, without it being done. "It's a bit like parents claiming a child benefit for two – or more – children when there is only one child in the family." writes Correctiv. This practice was outlawed in 2012.[5]

In cum-ex trades, shares with and without dividend rights were quickly traded between various market participants just before the payout date for the dividend, allowing traders to reclaim double the taxes.

Financial institutions in essence allowed two parties to simultaneously claim ownership of the same shares, therefore allowing both to claim tax rebates to which they were not entitled.

Authorities have since deemed the reclaims illegitimate, but at the time of the trades, this was less black and white, and a vast network of traders, analysts and lawyers were thought to be involved in the practice throughout the continent.[6]

The prestigious law firm Freshfields Bruckhaus Deringer gave tax advice which was used to justify the legality of the scheme. In November 2019, Ulf Johannemann, a former Freshfield partner who was head of the international tax department, was arrested.[7] [8] [9] In January 2024 Ulf Johannemann was found guilty of aiding and abetting a multiyear dividend tax fraud and sentenced to three years and six months in jail in a landmark ruling by a Frankfurt court.

In May 2020, the European Banking Authority announced a 10-point action plan to enhance the future regulatory framework surrounding dividend arbitrage trading schemes.[10] According to the report, in some countries, the cum ex deals are not criminal offenses.[11]

Danish dividend scandal

In 2010, in an audit report, the Danish Ministry of Taxation was found to have ignored warnings on multiple occasions of a tax loophole concerning dividend tax.[12]

In June 2020, it was reported by investigators that such transactions took advantage of European rules on the taxing of dividends, which made it possible to get refunds by using a combination of short sales and future transactions.[13]

Lawsuits in France

At the end of October 2018, the Socialist deputy Boris Vallaud filed a complaint against X for fraud and aggravated tax fraud laundering with the .[14] A parliamentary information mission on tax evasion[15] of the National Assembly has also published a report on the results of the fight against cross-border malicious financial engineering.[16]

Discovery

The Danish State Commissioner August Schäfer first warned of the practice in 1992, after the testimony of five whistleblowers. However, the practice remained widespread until an administrative assistant in the German Federal Central Tax Office noticed abnormally large tax rebate claims from a US pension fund.

Implicated institutions

Various banks and other financial institutions were involved in these alleged trades. Among those named in the leaked files include Macquarie Bank, Deutsche Bank, HypoVereinsbank, M. M. Warburg, Maple Bank, Merrill Lynch, KPMG, Ernst & Young, Investec,[17] and Freshfields.[18] Investigations revealed that since 2012 Investec had provided the Dutch broker Frank Vogel with more than €12 billion to facilitate his alleged tax arbitrage scheme.[19]

See also

Notes and References

  1. Web site: 8 February 2017 . Cum-Ex trading scandal in Germany – A huge challenge for financial institutions and the insurance industry . . 6 October 2020 . 26 October 2018 . https://web.archive.org/web/20181026185641/https://www.dacbeachcroft.com/es/articles/2017/february/cum-ex-trading-scandal-in-germany-a-huge-challenge-for-financial-institutions-and-the-insurance-industry/ . live .
  2. Web site: 18 October 2018 . Skattesvindel . tax fraud . 18 October 2018 . . Danish . 18 December 2018 . https://web.archive.org/web/20181218214117/https://www.dr.dk/nyheder/politik/tyskerne-om-tavshed-i-udbytteskandalen-vi-vidste-ikke-det-kunne-foregaa-i-danmark . live .
  3. Web site: Vartdal . Ragnhild . 18 October 2018 . Norge rammet av europeisk skatteskandale . Norway hit by European tax scandal . 18 October 2018 . Norwegian.
  4. News: 18 October 2018 . "CumEx Files": la fraude fiscale à 55 milliards d'euros . French . "CumEx Files": tax fraud for 55 billion euros . . AFP . 20 October 2018 . 20 October 2018 . https://web.archive.org/web/20181020223920/https://www.lepoint.fr/economie/cumex-files-la-fraude-fiscale-a-55-milliards-d-euros-18-10-2018-2263950_28.php . live .
  5. Web site: Hill . Jenny . 9 June 2017 . Germany fears huge losses in massive tax scandal . 29 October 2018 . BBC News . 13 November 2018 . https://web.archive.org/web/20181113194610/https://www.bbc.co.uk/news/world-europe-40199259 . live .
  6. Web site: Smith . Elliot . 14 October 2019 . A landmark German tax fraud case could ripple through the finance industry . 15 October 2019 . CNBC . en . 15 October 2019 . https://web.archive.org/web/20191015090437/https://www.cnbc.com/2019/10/14/cum-ex-german-tax-case-could-ripple-through-the-finance-industry.html . live .
  7. News: Sims . Tom . O'Donnell . John . 28 November 2019 . Former Freshfields lawyer arrested over German tax scam: sources . en . Reuters . 25 January 2020 . 25 January 2020 . https://web.archive.org/web/20200125010210/https://uk.reuters.com/article/us-germany-tax-probe-freshfields-idUKKBN1Y21AF . live .
  8. News: Former head of tax at Freshfields charged over illegal rebate scandal . https://ghostarchive.org/archive/20221211231216/https://www.ft.com/content/d280f414-32da-11ea-9703-eea0cae3f0de . 11 December 2022 . subscription . live . Olaf . Storbeck . 9 January 2020 . . 30 April 2023 .
  9. Web site: Freshfields 'Cum-Ex' Scandal Partner Arrested. Law.com International.
  10. Web site: EBA publishes its inquiry into dividend arbitrage trading schemes ("Cum-Ex/Cum-Cum"), and announces a 10-point action plan to enhance the future regulatory framework | European Banking Authority . 6 October 2020 . 5 September 2020 . https://web.archive.org/web/20200905043409/https://eba.europa.eu/eba-publishes-its-inquiry-dividend-arbitrage-trading-schemes-%E2%80%9Ccum-excum-cum%E2%80%9D-and-announces-10-point . live .
  11. Web site: EU-Behörde über Cum-Ex-Deals: Kein Austausch zwischen Aufsichtsbehörden . 12 May 2020 . 6 October 2020 . 23 May 2020 . https://web.archive.org/web/20200523131501/https://correctiv.org/aktuelles/cumex-files/2020/05/12/eu-behoerde-ueber-cum-ex-deals-kein-austausch-zwischen-aufsichtsbehoerden/ . live .
  12. Web site: Danes Failed to Heed Cum-Ex Warnings Before Hedge Fund Trades . 6 October 2020 . 5 August 2020 . https://web.archive.org/web/20200805194557/https://news.bloombergtax.com/daily-tax-report/danes-failed-to-heed-cum-ex-warnings-before-hedge-fund-trades . live .
  13. News: Hedge Fund Founder Fears He Can't Pay Legal Bills in Tax Case . Bloomberg.com . 19 June 2020 . 6 October 2020 . 7 August 2020 . https://web.archive.org/web/20200807032926/https://www.bloomberg.com/news/articles/2020-06-19/hedge-fund-founder-fears-he-can-t-pay-legal-bills-in-cum-ex-case . live .
  14. "CumEx Files": a citizen collective files a complaint with the national financial prosecutor's office La Tribune October 30, 2018 and November 6, 2018
  15. Bilan de la lutte contre les montages transfrontaliers Assemblée nationale
  16. RAPPORT D’INFORMATION DÉPOSÉ en application de l’article 145 du Règlement PAR LA MISSION D’INFORMATION COMMUNE sur le bilan de la lutte contre les montages transfrontaliers Assemblée nationale
  17. Web site: Investec implicated in probes into the world's largest tax fraud (Part 1). Dewald. van Rensburg. Fin24. 21 October 2021. 21 October 2021.
  18. Web site: CumEx Files 2.0. CORRECTIV. 21 October 2021. 21 October 2021.
  19. Web site: The CumEx Files (Part Three): Investec's multibillion-euro backing for legendary 'tax evader'. Dewald. van Rensburg. Daily Maverick. 28 October 2021. 30 October 2021.

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