The heyday of illegal cum-ex stock deals was more than a decade ago, but the tax authorities have only recovered part of the billions in lost tax money. Now, in view of the budget crisis, the Citizens’ Movement Financial Transition Association is calling for the Federal Republic’s biggest tax scandal to be dealt with more quickly. In addition, the investigations into related cum-cum deals should make progress in 2024.

“Billions are currently being urgently sought for savings, but the banks’ unauthorized profits are not being consistently recovered,” said Gerhard Schick, board member of the citizens’ movement Finanzwende, to the dpa. “This is a political question.”

“We’ll never know the full extent”

Schick called for more ambition from politicians. “The longer it takes to process cases and complete proceedings, the more difficult it becomes to punish perpetrators and collect funds.” In any case, you will never find out the full extent of Cum-Ex and get all the tax money back. “We can no longer come close to the sums lost before 2007,” says the former Green Party member of the Bundestag.

In cum-ex stock transactions, banks and other investors were reimbursed several times by the state for capital gains taxes paid on dividends. Investors took advantage of a loophole in the law at the time: around the dividend record date, shares with (“cum”) and without (“ex”) dividend entitlement were moved back and forth between those involved in order to confuse the tax authorities. It is estimated that there was a tax loss of at least ten billion euros.

The loophole was only closed in 2012, and in 2021 the Federal Court of Justice classified Cum-Ex as tax evasion. More and more defendants were convicted, including tax lawyer Hanno Berger and former employees of Maple Bank and the Hamburg Warburg Bank. Warburg banker Christian Olearius is also on trial.

There are now more prosecutors for cum-ex proceedings, but there is a lack of investigators and criminal investigators, criticizes Schick. In addition, there is still a lack of political support. This is shown by the “attempted disempowerment” of Cologne public prosecutor Anne Brorhilker.

According to figures from the Federal Ministry of Finance, 149 cum-ex cases have so far been legally concluded. 3.4 billion euros in capital gains tax and solidarity surcharge were reclaimed or corresponding refund applications were rejected. According to the latest data from the end of 2022, 418 suspected cum-ex cases were reported to be in progress with a tax volume of around 3.9 billion euros.

Even greater tax damage for cum-cum transactions

The state lost even more money in related cum-cum deals, which were more widespread and have hardly been dealt with legally. The Mannheim financial scientist Christoph Spengel estimates the tax damage between 2000 and 2020 at 28.5 billion euros.

In cum-cum deals, shares held by foreign investors were transferred to domestic shareholders, such as banks, shortly before the dividend record date. You were able to have the capital gains tax credited or refunded. The shares and dividends were then returned and the tax savings were shared. At the beginning of 2020, the Hesse Finance Court decided that cum-cum deals were abusive tax arrangements.

So far, only a fraction of the money of 237 million euros in capital gains tax has been reclaimed or not offset against the tax liability. According to the Federal Ministry of Finance, 237 suspected cases were being processed at the end of 2022 with a volume of around 6.4 billion euros. The politically responsible people in the countries must set the course for tax investigations and public prosecutors so that these billions can be brought back, demanded Schick.

A recently published letter from the Federal Ministry of Finance to the Finance Committee of the Bundestag shows how heavily German banks were involved in cum-cum deals. Accordingly, the burden on banks for tax refunds in 2022 was a good 4 billion euros. Of this, around 1.33 billion were offset and provisions of around 740 million euros were made for back taxes.

New verdicts expected in 2024

In the new year, new cum-ex actors are likely to come into focus. “I expect an indictment at the Bonn regional court against bankers from the former Landesbank WestLB, which was probably the biggest player in the cum-ex scandal in Germany,” said Schick.

Schick not only expects a verdict in the trial against the Warburg banker Olearius in 2024. A trial against a former top lawyer from the Freshfields law firm at the Frankfurt regional court is also nearing completion. A verdict would have a signal effect for other proceedings against legal advisors, says Schick. “The Cologne public prosecutor’s office could then bring other accomplices to account.”