Cum/Cum transactions: In recent years, “cum/cum” transactions, similar to the infamous “cum/ex” transactions, have attracted attention in the financial world and among law enforcement agencies. These transactions involve stock transactions that take place close to the dividend record date and are aimed at obtaining tax advantages at the expense of the state.
What is a cum/cum deal?
A “cum/cum” transaction is a share transaction in which a foreign investor sells his shares to a domestic buyer shortly before the dividend record date. The reason for these transactions is that dividends in Germany are taxed more heavily for foreign investors than for domestic investors. While the foreign investor has to accept a definitive tax burden when receiving the dividend, the domestic buyer can offset the capital gains tax paid against his tax liability.
The process of a typical cum/cum deal is as follows:
- The foreign investor sells his shares “cum dividend” (i.e. with dividend entitlement) to a domestic buyer shortly before the dividend record date.
- This domestic buyer receives the dividend on which capital gains tax has already been withheld.
- The domestic buyer can now offset this capital gains tax against his own tax liability, which the foreign seller could not do.
- After the dividend payment, the shares are often transferred back to the original foreign owner.
These transactions result in a tax loss for the state because the capital gains tax is credited even though the economic benefit remains with the foreign investor.
Difference to Cum/Ex transactions
“Cum/Ex” transactions are even more complex and also involve shares and dividends. Cum/Ex transactions involve trading shares with (“cum”) and without (“ex”) dividend entitlement around the dividend date in order to obtain multiple tax refunds on capital gains tax that was only paid once. While cum/cum transactions involve a one-off tax credit, cum/ex transactions aim to refund or credit the same tax multiple times, which ultimately leads to direct financial damage for the state.
Criminality of cum/cum transactions
The criminal nature of cum/cum transactions arises from their design, which aims to circumvent tax laws. These transactions are considered tax evasion because they are deliberately intended to obtain tax benefits that contradict the purpose of the law. Those involved in such transactions can be prosecuted for tax evasion if they claim unjustified tax benefits through these transactions.
Conclusion
Cum/cum transactions are highly problematic from a legal perspective, as they aim to gain tax advantages through contrived stock trading, which results in significant revenue losses for the state. Although they are formally structured differently than the more aggressive cum/ex transactions, cum/cum transactions are also prosecuted because they run counter to the principles of a fair tax system. This type of tax avoidance not only damages the state, but also undermines trust in the integrity of the financial markets.
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