Deutsche Bank AG was accused of using underfunded shell companies to evade U.S. taxes in a government lawsuit seeking $190 million in taxes, penalties and interest.
Germany’s largest bank has been grappling with mounting legal costs while seeking to resolve international probes, including investigations into alleged market rigging.
Deutsche Bank bought a corporation in 1999 that held stock whose sale would trigger more than $100 million in taxable gains because it rose in value, according to the government complaint in Manhattan federal court.
To avoid paying the taxes, Deutsche Bank made a deal with a firm that created three shell companies: BMY Acquisition Corp., BMY Acquisition LLC and BMY Statutory Trust. The three companies served as an underfunded special-purpose vehicle “with no function other than to be stuck with a tax bill that it could never pay,” according to the U.S.
“Deutsche Bank tried to make its potential tax liabilities disappear,” Manhattan U.S. Attorney Preet Bharara said yesterday in a statement. “This was nothing more than a shell game.”
Deutsche Bank admitted criminal wrongdoing in 2010 and agreed to pay $554 million to avoid prosecution for helping wealthy U.S. citizens avoid taxes with fraudulent shelters from 1996 to 2002. That case stemmed from a U.S. probe into illegal tax shelters sold by an accounting firm.
Renee Calabro, a spokeswoman in New York for Deutsche Bank, said the company previously reached an accord related to the claims in yesterday’s lawsuit.
“We fully addressed the government’s concerns about this 14-year-old transaction in a 2009 agreement with the IRS,” Calabro said in an e-mailed statement. “In connection with that agreement they abandoned their theory that DB was liable for these taxes, and while it is not clear to us why we are being pursued again for the same taxes, we plan to again defend vigorously against these claims.”
The U.S. said in its complaint that a Deutsche Bank entity sold the corporation holding the appreciated stock to BMY for an unjustifiably low price. BMY paid for the stock with a short-term loan and immediately after buying the stock, it sold the shares to a different BMY entity.
BMY was liable for the capital gains but paid back the loan and other expenses, leaving it without enough money to pay the taxes, according to the complaint.
The case is U.S. v. Deutsche Bank AG, 14-cv-09669, U.S. District Court, Southern District of New York (Manhattan).