Tax fraud: This is how the cum-ex trick works: Pay taxes once, get them back twice

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With the ingenious cum-ex trick, investors robbed the state of millions for years. We explain how the trick works – using a greatly simplified example.

©stern Infographic

  1. The public company (AG) distributes a dividend of 100 euros on the reporting date. Of this, the custodian bank A of the share owner receives 75 euros – the net dividend.
  2. 25 percent of the dividend, i.e. 25 euros, goes directly to the AG Tax office away. The capital gains tax was thus paid once.
  3. The bank passes on the dividend of 75 euros to the owner. In addition, she issues a tax certificate for the capital gains tax paid by the AG.
  4. Reimbursement #1: The owner submits the tax certificate to the tax office. He can have the tax refunded or offset it against losses, for example.
  5. Now she works trickery Come on. The goal: It should be concealed that a bank has already issued a certificate – another bank should issue a second one. The owner of the share, a short seller and a buyer agree on this.
  6. A short seller trades stocks that he does not yet own. Before the day of the distribution, he sells the buyer a share entitled to a dividend (cum dividend, 6a). He uses one for that foreign bankwhich pays no capital gains tax to the German tax authorities (6b).
  7. Because the short seller does not have the share, he obtains it from the owner after the key date and supplies it to the buyer. This happens without any entitlement to a dividend (ex dividend), because the owner has already received it.
  8. To satisfy the buyer’s dividend entitlement, the short seller pays him one compensation payment of 75 euros, i.e. exactly the amount of the net dividend. The money flows via the foreign bank to the German bank of the buyer (Bank B).
  9. For Bank B, this looks like a dividend. Therefore, she assumes that, as usual, tax has already been paid. She does not check whether this actually happened. Instead, she automatically spits one out another tax certificate out of.
  10. Reimbursement #2: The buyer has the tax of 25 euros refunded or credited. The state pays twice, even though it has only collected once. Owners, short sellers and buyers share the spoils. In 2012, the government banned such deals. They are illegal.

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