Cum-Ex-Geschäfte

“Cum/ex transactions.” A lucrative tax loophole that major German banks have been using. Spiegel reported the story on 28 Apr 2013, saying it had been broken by the Berlin Sunday version of Die Welt (Die Welt am Sonntag, WamS) but so far search results for it online are only turning up in Der Spiegel. The loophole, estimated to have cost the German government 12 billion euros so far, was created by corporate tax reform legislation of the SPD + Green Party coalition in 2002. Though discovered by officials shortly thereafter in 2002, and reported all the way up the chain of command, the loophole was not fixed by Hans Eichel (SPD) or his successor Peer Steinbrück (SPD, currently running against Angela Merkel for chancellor of Germany). Amendments to the law in 2007 made the situation worse, Spiegel reports that WamS reports. Wolfgang Schäuble (CDU) appears to have waited several years to fix the problem as well, though now the order appears to have gone out.

The problem was this: under certain circumstances capital gains tax could be reimbursed multiple times. After e.g. stocks or bonds were sold short but before they were bought back to conclude the transaction, German bureaucracy sometimes obscured to whom the stocks or bonds belonged: the person loaning the stock, the short seller or the end customer. The question would be trivial, say financial reporters, were it not for the fact that sometimes if the sale occurred right before a dividend the German IRS would erroneously issue more than one get-your-tax-back certificate for capital gains on the stock. Honest people would ignore the unearned get-your-tax-back certificate, but others would deliberately game the system to get the treasury to reimburse them these taxes even conceivably more than five times, said professor Heribert Anzinger of the University of Ulm.

This looks like the dividend stripping loophole HypoVereinsBank and others were reported in 2012 to have used to extract money from the German fiscus. Etymologically, Wikipedia contributors explain, when a company’s general assembly of shareholders decides to issue a dividend, the dividend is usually issued the day after the assembly meeting, called the “ex day” (“Ex-Dividende”). The day before the ex day is called the cum day, for arcane reasons.

(COOM   ECKS   geh SHEFF teh.)

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