According to information published by the investigative syndicate which includes the German fiancial paper Handelsblatt, the public radio and television station of Bavaria (BR), the Washington Post and the ProPublica investigation agency in New York, German banks have been aiding investors in the use of a loophole in the taxation system, thus avoiding to pay millions of euros. The syndicate estimates that the lost revenues for the German national budget rose to  5bn euros in 2011 alone. Commerzbank, a major bank of Germany is said to have been among the most active participants in these schemes, known as Cum-Cum.

One of the ways in which this schemes worked goes as such: A company based outside Germany owns stocks of a German company. Just before the payment of the annual dividends, the company loans the shares to a German bank. The dividends are paid to the bank which then pays 25% as tax on the gains.

Nevertheless, as the bank is based in Germany it is entitled to a tax benefit on the entire amount, thus, finally keeping 100% of the paid dividends. Shortly after the dividend payment the bank returns the stock portfolio to the original investor after withholding 5% on the dividend amount as a fee for its services.


The foreign company achieves considerable gains as it would have only enjoyed a 50% percent tax return on its dividend gains whereas the German bank can take that benefit to 100%. The main losses are suffered by the German state coffers as they are tricked into much higher tax returns than it should.

When asked about the allegations, a Commerzbank spokesman, which has been the recipient of a state bailout to the amount of 18,2bn euro, stated that the bank ensures via the use of extensive internal systems and controls that every financial transaction in the bank is in accordance with the current code of conduct.

The same spokesman clarified that in thousands of daily transactions the bank does operate “unavoidably within the so called com/cum context”. Indeed a spokesperson for the American investment company, Vanguard is said to confirm that this is a “widely spread practice”.

The German Finance Ministry has yet to issue a statement on the issue. It should be noted that the German cabinet has already scheduled the legislation of a bill which was aiming at simplifying the taxation of investment funds, thus impeding tax evasion tactics.

Source: dw.com, Handelsblatt