The Tax Dodges That Are Haunting Global Banks

The investment seemed virtually risk-free, guaranteeing hefty returns after only a short period of trading. By exploiting how Germany once taxed dividend payments, dozens of bankers, brokers and lawyers helped investors snatch billions of euros from the national treasury. A decade later prosecutors won their first convictions for tax crimes. In Germany alone, some 1,800 people are facing investigation in what’s come to be called the Cum-Ex affair. Now French banks have been ensnared in a similar strategy known as Cum-Cum.

The trades exploited an interpretation of the tax code that appeared, at the time, to let multiple people claim ownership of the same stock and — crucially — the right to a refund of taxes withheld from dividends. The transactions relied on the sale of borrowed shares just before a company was scheduled to pay dividends. This enabled more than one investor to claim a refund on a tax that was paid only once, according to German authorities. The practice was named after the Latin terms cum/ex, meaning with/without, because the stock was sold with — but delivered without — a dividend payment.