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Large tax evasion and avoidance schemes have caused governments a loss of revenue estimated at 150 billion euros (about $ 175 billion), research shows.
The so-called cum-cum and cum-ex schemes are designed to take advantage of weaknesses in the tax laws of different countries.
They apply to payments or dividends that companies deliver to shareholders.
The new figures have been calculated by a team of experts from the University of Mannheim in Germany, in association with the German non-profit group Correctiv.
The report is part of a joint investigation known as CumEx Files 2.0 and carried out by journalistic newsrooms around the world, coordinated by Correctiv.
What are cum-ex schemes
The investigation sheds new light on a growing scandal that first came to public attention in 2018.
The so-called cum-ex operations are transactions in which the actions are sold immediately before the payment of a dividend (ca dividend), but it surrendersn after (exdividend).
This tactic creates confusion about who owns the shares at the time the dividend is paid.
The maneuver allows both parties to claim refunds on withholding taxes, even though they are only paid once, when the dividend is issued.
This practice became popular in Germany in the early years of the 21st century and continued until 2012, when the law was changed.
It also spread to other countries, notably Denmark, but also France, Belgium, Italy, and Austria.
In Germany, the Justice have launched a wave of criminal investigations.
Several people have already been found guilty of tax evasion. Currently, about 1,000 people are being investigated, including bank personnel, lawyers and stock brokers.
While the fallout from the cum-ex operations has dominated media attention and prosecutors’ interest so far, the latest findings from the Correctiv investigation suggest that an even bigger scandal may be brewing.
Cum-ex maneuvers are understood to have cost governments nearly $ 11 billion. But according to researchers at the University of Mannheim, that figure is dwarfed by losses from another long-standing form of buying and selling dividends, known as cum-cum.
This strategy is used in countries where national and foreign investors are treated differently for tax purposes.
A foreign investor sells or lends shares, just before the payment of dividends, to a second investor residing in the country where the company is listed.
The second investor you can claim a dividend tax credit that would not have been available to the foreign investor. Shares can be returned to the original owner and the profits shared.
The Mannheim team estimates that between 2000 and 2020, this practice cost 10 governments, including those of Germany, Spain, France and the United States, a total of $ 164 billion and describes this estimate as “very conservative.”
However, it is not so clear whether these losses will lead to lawsuits.
Gray legal area
The cum-ex operations involved generating multiple claims for withholding tax that had only been paid once and their use has been described as a “criminal act of tax fraud” by the Federal Court of Justice of Germany.
But experts say the schemes cum-cum is foundn in a gray legal area.
“It’s not illegal,” explains Christoph Spengel, professor of international taxation and leader of the Mannheim team.
“But in individual cases, in Germany it is against the law if the sole purpose of buying and repurchasing shares is to obtain a tax benefit,” he adds.
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Eddie is an Australian news reporter with over 9 years in the industry and has published on Forbes and tech crunch.