“Cum-Ex” – A tax scam that remains in the shadows

30 Jan 2019

In October 2018, the “CumEx-Files” scandal broke out, making headlines in the German media. The least one can say about it is that it represents a true “heist” on European public treasuries. A commentary from Fernand Muller, former Vice-President of the Union of Finance Personnel in Europe and CESI representative in the European Commission's Expert Platform for Tax Good Governance.

“Cum-Ex” – A tax scam that remains in the shadows

The financial players involved belonged to the shares markets, both before (Cum) and after (Ex) the maturity date for the payment of dividends. The losses allegedly total 55 billion Euros, of which 31.8 billion in Germany, 17 billion in France, 4.5 billion in Italy, 1.7 billion in Denmark, 201 million in Belgium and 10 million in Luxembourg, where only one case has been revealed so far.

In order to make their profits off the back of State treasuries, the fraudsters used two methods: either they applied the exemption of withholding tax on dividends (in the case of high-value shares) followed by a request for reimbursement, or they applied they settled the withholding tax on the dividends, followed by one or several requests for its reimbursement. The short selling of shares by means of forward contracts when the payment of dividends did not allow the tax officials to identify who had paid the withholding tax on dividends and who was entitled to a reimbursement thereof. These reimbursements, however, were only permitted upon the presentation of a bank certificate justifying the equity portfolio, and if applicable, the payment of the withheld sums on the dividends. Therefore, the role played by the fifty-odd banks involved in the scandal is significant.

As member of the Platform for Tax Good Governance assisting the European Commission in its tax policies, we urge the judicial authorities of the countries concerned by the “Cum-Ex” case to shed light on these fraudulent procedures, and that the shareholders, company managers and bank should be investigated. We demand that the political authorities, tax authorities and institutions responsible for monitoring banks to modify the legislation and internal audits, so as to prevent such acts in future.

In difficult times for public finances in European countries, it is necessary to ensure that the social budgets are met and stop public funds from being misappropriated and pocketed by shareholders.

Picture: Fernand Muller © UFE 2019