Banks in Germany Face Billions in Back Taxes Due to Illegal Share Deal practices
In a recent development, German banks are required to pay substantial back taxes associated with illegal share transactions. According to a letter from the Federal Ministry of Finance to the Finance Committee of the German Bundestag, reported by "Bayerischer Rundfunk" and accessible via Deutsche Presse-Agentur, these transactions have been causing financial institutions significant trouble.
Bafin, the German financial supervisory authority, has been urging banks to disclose the potential repercussions of their involvement in cum-cum transactions for some years now. Their concerns centered around estimating tax arrears and if institutions had provisions in place. In total, roughly 1,500 German banks and selected securities institutions participated in Bafin's surveys related to cum-cum transactions. The results showed no imminent risk of insolvency at affected institutions.
Cum-cum deals, similar in nature to cum-ex transactions, have caused significant setbacks for the state. From the inception of these deals in 2000 through 2020, experts estimate that they have resulted in 28.5 billion euros of damage to the tax authorities.
Initially, in 2017, the majority of banks claimed minimal involvement in cum-cum deals. However, subsequent disclosures resulted in significantly higher financial responsibilities. Revenues estimated to be lost from these deals amounted to approximately 610 million euros, with around 273 million euros set aside in provisions. In the 2020 survey, banks reported greater financial charges, estimated at 960 million euros, with more than half already returned to financial authorities.
According to the most recent survey, cum-cum deals have led to a tax burden of approximately 4 billion euros. A significant portion of this, around 1.33 billion euros, has already been settled, while provisions for estimated tax back payments totaled around 740 million euros.
Cum-cum deals involve the transfer of shares held by foreign investors to domestic banks before the dividend record date. This transfer allows domestic shareholders to claim capital gains tax credits or refunds. The shares and dividends are then returned, and tax savings are shared among parties involved. In early 2020, the Hesse Fiscal Court ruled that cum-cum deals are abusive tax arrangements.
Mannheim-based financial expert, Christoph Spengel, estimates that cum-cum deals have caused vast damage to the tax authorities between 2000 and 2020. Gerhard Schick of Bürgerbewegung Finanzwende urges more haste in the investigation of these transactions, stating that banks should not be profiting from their illegal actions at the expense of taxpayers.
Enrichment
Regulatory actions and measures have been implemented to address and prevent these financial crimes. For instance, the European Banking Authority (EBA) has focused on enhancing tax integrity and preventing dividend arbitrage trading schemes like cum-ex and cum-cum. Among its methods are amending prudential guidelines, integrating tax issues into the risk-based AML/CFT supervision, and establishing internal organizations within financial authorities to detect and mitigate risks associated with tax crimes.
Financial authorities, such as BaFin in Germany, cooperate with tax authorities to address tax fraud. They provide collected information to tax authorities, respond to information requests when criminals are suspected, and exchanged information with other bodies when necessary. Despite this, corporate tax fraud remains a significant aspect of the global economic landscape.
German politicians and tax authorities are pushing back against these illegal transactions to ensure tax revenue is recovered. This consists of operational measures, such as implementing regulations to prevent future incidents and recruiting additional investigators to drum up more aggressive investigations.
In a recent interview, Scholz, a leading political figure, emphasized the importance of transparency and accountability within the stock market, ensuring fairness and financial integrity overall.
