There are a few closely described pages that provide information about a suspected tax evasion case that is very reminiscent of the Cum-Ex scandal. A nationwide financial agency has sold 44 wealthy clients a tax avoidance model that has made the tax authorities poorer and millionaires richer. This model and its consequences are described in detail in a search warrant issued by the Munich District Court for a raid a few weeks ago.
It is about a complicated structure with several companies operating on several levels, which should apparently confuse the tax authorities. This model is said to have been developed and put into practice from 2013 onwards, i.e. it has been running for eight years. But the federal government and the Bundestag did not stop the questionable goings-on until 2021 with a change in the law. A total of around 100 suspects are being investigated. Defense lawyers reject allegations of tax evasion amounting to more than half a billion euros.
Insiders are already talking about “Cum-Ex two”
Those who know the case are already talking about “Cum-Ex two”. In cum-ex stock deals, banks and stock market traders had the government deceived by tricky deceit and reimbursed them several times for a tax that had only been paid once. It is said to have gone similar with the new model. Losses generated from trading in certificates especially for tax optimization are said to have been claimed twice with the tax authorities.
According to the search warrant, the authorities are so far aware of 44 cases in which customers of the finance agency with this model would have claimed a total of more than a billion in losses from the tax authorities. According to information from those involved in the proceedings, the agency’s clients are said to have shirked tax payments that were actually due in the amount of more than 500 million euros. In an illegal way, as the Munich I public prosecutor believes. Each of the finance agency’s 44 customers would have reported an average loss of more than 22 million euros to the tax authorities, saving themselves more than eleven million euros in taxes.
This is supposed to have happened quite simply because these clients took over a loss-making company from the portfolio of the finance agency and claimed their losses with the tax authorities. Previously, the finance agency had generated equally high profits as losses when trading certificates. The profits were only taxed once, but the losses were claimed twice with the tax authorities. The basis for this was the conversion tax law. This can be found in the search warrant.
The conversion tax law was changed in mid-2021; eight years after the finance agency is said to have started developing this tax avoidance model. Only since this change in law are owners of companies who buy other companies no longer allowed to claim “negative income” from these companies under certain circumstances with the tax authorities.
The lawmaker allowed this model, says a defense lawyer
If the government had wanted to prevent the model now being objected to by the public prosecutor, “then it would have had to change the conversion tax law earlier,” says Munich tax attorney Richard Beyer. He defends one of the accused. Beyer explains that the legislature has allowed this tax structure model. That was expressly regulated in the Transformation Tax Act. “That wasn’t a back door. The legislature opened a barn door for this model.” The change made in mid-2021 could not be applied retrospectively to tax cases that have already been settled; that would be unconstitutional. Beyer: “The means of criminal law should now be used to achieve what was politically neglected.”
From the point of view of the Munich I public prosecutor’s office, things are different. The search warrant obtained by the public prosecutor’s office states that the tax avoidance model was never disclosed to the tax authorities. The fact that this was an abuse was deliberately concealed from the start. Rather, an attempt was made to give the impression that this was about ordinary business. The tax authorities had been deceived. Beyer and other defense lawyers for defendants deny these allegations.
The former member of the Green Party, Gerhard Schick, who now heads the Finanzwende organization, sees a fundamental political problem. The new suspected tax case is another example of the “rabbit and hedgehog game between tax tricksters and the state”. The state is apparently not set up in such a way that it recognizes and prevents such tax avoidance models at an early stage. There are always new models. “The state could notice that sooner instead of eight years later,” says Schick. The organization Finanzwende advocates stronger controls in the financial industry.