Germany's financial watchdog, BaFin, estimates that German financial institutions face potential liabilities of up to €7 billion as a result of the cum-ex tax fraud scandal. This figure encompasses a total of 253 suspected cases currently under investigation, highlighting the significant financial fallout for the sector.
The cum-ex scheme, described as the "most complicated" tax fraud case in history, involved sophisticated share trading around dividend dates to mislead tax authorities into granting multiple refunds on a single capital gains tax payment that was often never paid. This deliberate exploitation of a loophole between 2005 and 2011, and the related cum-cum schemes, have collectively cost the German treasury an estimated €29 billion between 2000 and 2020. Globally, the revenue loss is estimated at over €140 billion.
Investigations into cum-ex and cum-cum trades have intensified since 2016, with prosecutors raiding bank premises and pursuing cases against numerous financial institutions and over 60 individuals. A German court has already confirmed fines amounting to millions of euros against a bank and two London share traders, with one banker receiving a five-and-a-half-year jail sentence for aggravated tax fraud. Prosecutors hope these legal actions will set precedents for other trials and aid in uncovering similar illicit activities.
Despite law changes in 2012 to close the cum-ex loophole, criticisms persist regarding the continued prevalence of cum-cum deals, which leverage untaxed securities lending fees for profit. Experts like Christoph Spengel from the University of Mannheim advocate for straightforward legal amendments to fully close this loophole and for more thorough reviews of tax refund claims. The financial industry faces enhanced risks, with BaFin sending questionnaires to nearly all German banks to detail stock trades around dividend dates between 2000 and 2012, further underscoring the broad impact and ongoing scrutiny of these practices.
