Federal Fiscal Court: No tax refund for Cum-Ex

The Federal Fiscal Court also considers cum-ex transactions with dividend stocks to be inadmissible under tax law.

In the long-awaited ruling, the highest German tax court rejected the appeal of an American pension fund that, as part of a dealer network, had participated in the controversial business worth billions and wanted to have the capital gains tax due reimbursed by the Federal Tax Office.

Foreign investors are exempt from the tax.

However, the Federal Fiscal Court (BFH) ruled in the judgment published in Munich on Tuesday that the fund had never become the beneficial owner of the shares in the transactions - which would be the prerequisite for a tax refund.

(Az. IR 22/20) Because the voting rights and the right to a dividend continued to lie with the seller of the shares as of the reporting date.

"With its judgment (the Federal Fiscal Court) rejects a 'business concept' that wanted to use uncertainties in the clear economic allocation of shares in such a way that a withholding tax that has been retained is possibly offset or paid out twice or even several times by the tax authorities," explained the court.

In the case of cum-ex transactions, investors had a once-paid capital gains tax on stock dividends reimbursed twice by the tax office.

To do this, they shifted shares with (“cum”) and without (“ex”) dividend entitlement around the cut-off date for the payment of the dividend.

These deals are now classified as illegal.

Several bankers and investors have already been convicted or are on trial for participating in such deals.

In the case before the BFH, the fund had bought futures on shares before the dividend record date, which were only transferred after the record date.

The buyer and seller demanded a return of the tax on the dividends from the tax office, even though it had only been paid once.

In its judgment, the Cologne Finance Court described this as a "criminal highlight".

The Federal Court of Justice (BGH) had assessed cum-ex transactions in a different constellation - in the case of a short sale - as punishable tax evasion.