Cum Ex: the tax fraud by €55 bn for Europe

A gigantic years-long tax scam saw banks drain 55bn euros ($63bn) from national treasuries in Europe, a far larger sum than previously thought, media from across the continent reported on Thursday.

For the last few years, German authorities have been investigating hundreds of the tax fraud cases, where banks and stockbrokers rapidly traded shares with (“cum”) and without (“ex”) dividend rights, with the aim of being able to conceal the identity of the actual owner and allow both parties to claim tax rebates on capital gains tax that had only been paid once.

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.

According to the Cologne prosecutors, the tax fraud scheme was promoted by a former German tax inspector-turned-tax adviser called Hanno Berger, among others.

Berger, the central suspect in the investigation, now lives in exile in the Swiss Alps. He told Reuters that he advised the Australian bank Macquarie, another caught up in the scandal, on cum-ex trading but claims he was not paid for it. He says the scheme was based on a legitimate legal loophole.

“They (the German state) cannot punish others for their mistakes,” he said.

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 among themselves – with the treasury footing the bill.

Thursday’s investigation, led by investigative journalism website Correctiv and drawing in big-name outlets like German public broadcaster ARD and French newspaper Le Monde, calculates the damage to each country involved.

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.

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.