DekaBank Fights Tax Demand Worth €500 Million: A Looming Legal Battle Ahead
DekaBank deems cumulative-cumulative transactions as legally permissible
In a bold move, DekaBank has confirmed paying approximately half a billion euros to the tax authority following a controversy over tax-saving models. However, the bank believes the claims made are incorrect, leading them to file appeals against all notices, hinting at a heated legal battle possibly reaching the highest court.
The Controversial Confirmation
After financial portal "Finanz-Szene" reported about significant tax refunds due to "cum-cum" transactions, DekaBank swiftly settled the claims, including interest. The settlement amounted to around 500 million euros. Yet, the bank stands firm on its legal ground, having filed an appeal against the two tax notices. This move suggests a persistent battle through all court instances.
DekaBank's involvement in the tax demand has not been a secret. Investigative journalists uncovered the bank's part by examining business reports from 2023 and 2024, estimating the tax refund claims to range between 478 million euros and 574 million euros.
The Unequal Treatment
"Cum-cum" transactions arise due to a discrepancy in the tax treatment of German Aktien owners and foreign investors regarding capital gains tax on dividends. While both are liable for capital gains tax, German banks can offset this tax by means of loss and cost offsetting from other securities transactions. To circumvent this burden, foreign investors often lend their shares to German banks, paying a fee roughly equivalent to the dividend. The bank collects the full dividend, pays capital gains tax at a rate of 25%, and returns the dividend to the foreign investor, effectively getting a 5% profit while the investor receives it almost tax-free.
BMF's Negation and Repayment
In a letter from the Federal Ministry of Finance dated July 9, 2021, IV C 1 - S 2252/19/10035 :014, the economic transfer in cum-cum arrangements is denied. The ministry considers this tactic abusive under section 42(2) of the Fiscal Code, resulting in demands for the repayment of the capital gains tax refunded to DekaBank, as well as interest.
Despite the BMF's previous letter dated July 17, 2017, stating that civil and economic ownership is transferred in cum-cum, an appeal has been filed.
The Legal Conundrum
The Frankfurt Higher Regional Court has raised questions about disclosure obligations related to cum-cum transactions in a 2024 decision (Case No. 3 Ws 231/24). The court has emphasized that all relevant circumstances in a transaction should be disclosed to the tax office, not just a part of them. If this ruling influences the overall case, it could potentially shatter DekaBank's confidence in its legal stance.
Lawyers Heiko Gemmel and Olaf Schneider, in an article, mentioned that the Higher Regional Court's decision does not suggest that cum-cum transactions are criminal under any circumstances, but it does expand the disclosure obligations.
DekaBank's legal battle over a €500 million tax demand, stemming from controversial "cum-cum" transactions in their business operations, continues as they appeal against notices issued by the tax authority, indicating a long-lasting dispute through all court instances. Despite the Federal Ministry of Finance's denial of economic transfers in cum-cum arrangements, DekaBank's persistence is bolstered by a Frankfurt Higher Regional Court decision that broadens disclosure obligations, potentially influencing the case's outcome.
