Germany takes action over €440m tax fraud

The German finance ministry is to set up a new special unit to tackle large-scale tax fraud in the wake of the so-called Cum-Ex case, which has seen two British investment bankers on trial for their part in an alleged €440m fraud using complex financial transactions to engineer tax losses

The Cum-Ex trial started in September and is expected to last until next year. It concerns the use of share transactions done at high speed on or just before the day dividend payments are recorded.

The alleged fraud was based on deals which were largely executed in Germany between 2001 and 2011, and allegedly exploited a flaw in Germany’s tax code which meant the perpetrators were able to trick the tax authorities into refunding dividend tax which had never been paid. The finance ministry has reported that around 500 such deals, worth €5.5bn in total, are being investigated.

In a statement, the German finance ministry said the case ‘has clearly shown that there are criminal structures that operate globally to deliberately evade taxes. Germany has thereby lost billions in tax revenues.’

In response, it has announced the setting up a new special unit tasked with detecting large-scale fraud more quickly and responding to new developments in financial crime faster.

The unit will have more than 100 staff based at the Federal Central Tax Office, including specialists from the financial sector.  The aim is to provide a central source of expertise which local tax authorities in Germany could not afford on their own. It will be able to collect and analyse information and coordinate actions with other authorities, including foreign law enforcement agencies.

In a statement the German finance ministry said: ‘An essential element of the work of the special unit will be to assist the federal and state authorities in dealing with current cases.

‘Initially, this will mainly concern the review of the cum-ex cases, which are currently being handled by various tax investigations and prosecutors in the countries.

‘On the one hand, this significantly relieves the burden on the provincial authorities involved in investigating cases and, on the other hand, makes it possible to detect further cases.’

The special unit will be a central point of contact for all state and federal authorities, who encounter potentially abuse tax structures in the capital market area. Its employees will be authorised to carry out searches and seizures in case of suspicion.

The finance ministry said the setting up of the special unit goes hand in hand with a series of further measures to address tax avoidance.

These include a new law introducing an obligation to communicate cross-border tax arrangements which is about to be passed by the Bundestag. From 2020 this will require tax consultants and lawyers from to notify the tax authority of cross-border tax arrangements that indicate tax avoidance on the basis of certain indicators, well before tax assessment in the tax office.

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