Tax fraud: How Cum-ex and Co can finally be stopped

The Federal Court of Justice has confirmed: Cum-ex transactions are punishable.

Still, not enough has been done to prevent deals or nip new variations in the bud.

In view of the billions in damage, real solutions must be established.

Put simply, Cum-ex is like handing in returnable bottles in the supermarket, but copying the deposit receipt and redeeming it several times at the supermarket checkout.

The deals presuppose illegal collusion.

The fraud at the expense of the state treasury, the reimbursement of taxes that were never paid, is the sole purpose of the business.

In the case of cum-cum transactions, on the other hand, one tax was not refunded several times, but the different tax treatment of dividends between institutional non-resident taxpayers and tax residents was exploited.

To this end, shares were transferred to German banks shortly before the dividend payment.

After the shares had been transferred back to the foreign shareholder, the proceeds were shared among the stakeholders involved.

According to estimates by tax expert Christoph Spengel, the German state has suffered damage of at least 35.9 billion euros since the turn of the millennium as a result of cum-ex and cum-cum transactions - more than 400 euros per German citizen.

Cum-cum transactions account for the largest part of this, at EUR 28.5 billion, with the remainder mainly being cum-ex transactions.

The criminal collusion of banks, institutional investors and investors hungry for returns has severely damaged confidence in compliance with the law.

It is therefore not only about the economic damage, but about an attack on the democratic community.

While the criminal investigation of Cum-ex has gained momentum and the Bundestag has also legislated to ensure that tax-barred crimes can in future be confiscated in criminal proceedings,

Reconcile all refund requests

In the case of Cum-ex, the federal states have so far secured around 1.4 billion euros in a legally binding manner, but at least have refused the payment of capital gains taxes in good time.

Collections of another billion euros are still expected.

In the case of the cum-cum transactions, which are much more expensive for the state, only 135 million euros had been recovered by the end of 2020.

However, an instruction from the Federal Ministry of Finance from July 2021 now allows the cum-cum loot to be confiscated on a larger scale.

To do this, the federal states must significantly upgrade and empower the public prosecutor's offices and tax investigation departments.

Insiders report that cum-ex-like arrangements (which also include cum-cum transactions here for the sake of simplicity) are still possible in Germany.

North Rhine-Westphalia's Justice Minister Biesenbach has just confirmed this.

The grievances would not be remedied with the withholding tax relief modernization law of the former finance minister Olaf Scholz.

We therefore propose the following measures to prevent cum-ex-like transactions:

One possibility would be a

with capital gains tax payments.

The system introduced in Switzerland for the reimbursement of the local withholding tax could serve as a model;

There, tax refunds are only possible on the basis of vouchers, with which the bank confirms that the tax has been paid and is liable for it itself.

In Germany, one could think that only the Federal Central Tax Office can issue certificates of paid capital gains tax with a serial number.

The taxpayer could then attach the certificate to his tax return and ask the tax office at the Federal Central Office whether this personalized certificate has already been used.

In the current coalition agreement, such an automated comparison with the use of blockchain technology to combat tax fraud is indicated.