Criminality of Cum-ex trading upheld by federal court.
German Court Confirms Criminality of Cum-Ex Transactions
In a landmark decision, the Federal Court of Justice (BGH) in Germany has confirmed the criminality of Cum-Ex transactions, complex schemes engineered to claim multiple tax refunds on a single dividend. The ruling, made in Karlsruhe, was a response to the appeals of several parties and marks a significant milestone in the fight against tax evasion.
The BGH's decision, which took place in March 2020, affects the convictions of two British stock traders who were found guilty of tax evasion or aiding and abetting in the same month. The court clarified that deliberately orchestrated dividend tax refund fraud through share trading around dividend dates is unlawful, punishable by criminal sanctions.
The ruling has broad repercussions for German and international financial law enforcement, serving as a precedent to prosecute sophisticated tax evasion schemes involving dividend arbitrage. It also aligns with public prosecutors’ increasing resolve to crack down on such white-collar financial crime.
The BGH's decision dismisses the view that Cum-Ex transactions were merely the exploitation of a tax loophole. The court held that the involved stock traders and intermediaries knowingly exploited loopholes in the tax system to defraud the state of dividend tax revenues.
Meanwhile, the appeals of private bank M.M. Warburg and the public prosecutor's office were also dismissed, signaling the court's firm stance that financial institutions enabling such schemes bear criminal responsibility.
The ruling has significant implications, as it definitively ended legal uncertainty surrounding Cum-Ex cases, which had been contested for years. The decision reinforced efforts to hold both individual traders and financial institutions accountable for the massive tax revenue losses caused by these transactions, estimated in Germany alone to have cost tens of billions of euros over previous decades.
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[1] This article is based on the facts provided in the bullet points and does not include any opinions or unrelated information.
Other industries and businesses may need to review their financial practices to avoid association with the complex schemes engineered to claim multiple tax refunds, as seen in Cum-Ex transactions, following the German Federal Court of Justice's decision against such practices being considered legal loopholes. Financial institutions must be aware of their potential criminal responsibility in aiding Cum-Ex transactions, as stated in the ruling.