It is illegal to reclaim dividend tax multiple times when it has only been paid once. That is the conclusion in the first judgment of the highest German court on the so-called cum/ex fraud.
The ruling clarifies Germany and other duped states to prosecute bankers, merchants and investment funds involved in the scam that cost their treasuries billions of euros.
The trick, which came to be known as cum/ex fraud, involved buying and selling large parcels of stock very quickly around the dividend payment date. As a result, dividend tax was paid only once, but both sellers and buyers of the shares asked for a tax refund. In this way, those involved in the dividend constructions managed to extract more than 55 billion euros between 2001 and 2016, as estimated by the collective of investigative journalists The Cumex Files in 2018.
The Bundesgerichthof in Karlsruhe, whose rulings can in principle no longer be challenged, calls the trick a “criminal act of tax fraud”. Where it was previously suggested that there was a loophole that allowed the unjustified refund of dividend tax, the German judges put a line through it. You cannot reclaim tax from the tax authorities that you have never paid, explained Bundesgerichthof President Rolf Raum.
The court also dismissed two appeals from two British investment bankers and a German bank who were convicted of their role in the fraud. The two bankers were sentenced to suspended prison sentences in March 2020 for cheating Germany at least 400 million euros in tax revenue. In addition, the private bank M.M Warburg had to pay 176 million euros for the cum/ex fraud.