Europe: Banks used tax schemes to drain up to €55 billion from treasuries 0

Two closely-related tax schemes have helped banks and investors avoid tax or even siphon cash directly out of European treasuries totalling billions more than previously thought, an investigation by 19 media revealed Thursday.

So-called “cum-ex” and “cum-cum” deals — complex stock transactions around the days when companies pay out dividends — have cost taxpayers as much as 55 billion euros ($63 billion) in lost revenue or outright fraud since 2001.

The schemes were first uncovered in Germany in 2012.

But beyond Europe’s largest economy, Thursday’s investigation found evidence of the practices in France, Spain, Italy, the Netherlands, Denmark, Belgium, Austria, Finland, Norway and Switzerland.

Accounting for the bulk of the total at 46 billion euros, technically legal “cum-cum” tax avoidance exploits varying treatment of domestic and foreign shareholders.

Foreign investors holding shares in a company temporarily sell the stock to a bank based in the same country as the firm ahead of the day dividend gets paid out.

This allows them to escape higher taxes on the dividend charged to shareholders from abroad, before buying back their holdings quickly afterwards.

Such deals deprived Germany of 24.6 billion euros in tax revenue, France 17 billion and Italy 4.5 billion, according to the investigation led by investigative journalism website Correctiv with big-name outlets like German public broadcaster ARD and French newspaper Le Monde.

Criminal investigations

Meanwhile, clearly fraudulent “cum-ex” deals draw in more parties in a complex dance around the taxman.

Reportedly conceived by well-known German lawyer Hanno Berger, the cum-ex method relies on several investors buying and selling shares in a company amongst themselves around the day when the firm pays out its dividend.

The stock changes hands so quickly that the tax authorities are unable to identify who is the true owner.

Working together, the investors can claim multiple rebates for tax paid on the dividend and share out the profits amongst themselves — with the treasury footing the bill.

This practice cost Germany 7.2 billion euros, Denmark 1.7 billion and Belgium 201 million, the investigation found.

Since 2012 six criminal investigations have been opened in Germany, including against tax lawyer Berger and several stock market traders.

Norway’s tax authority told AFP that it had uncovered a fraud worth 580,000 crowns ($70,533 or 61,304 euros) in 2013 and blocked several later attempts after a warning from Denmark.

The country has since strengthened its surveillance, it added.

Meanwhile Danish prosecutors have been studying tax practices around dividends since 2015 and are examining “whether there is a basis for criminal proceedings against people or companies involved,” spokesman Simon Gosvig said.

Pierre Moscovici, European Commissioner for economic and financial affairs, tweeted in response to the investigation that European tax authorities should share more information and improve transparency.

“If the fraudsters’ imagination is limitless, my determination is as well!” he wrote.