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> Is this actually illegal though? Or is it just clever exploitation of the rules? Tax avoidance is not the same as evasion. IMO illegality has a human and per

> Is this actually illegal though? Or is it just clever exploitation of the rules? Tax avoidance is not the same as evasion. IMO illegality has a human and personal component too. I understand your question is about whether what they did was legal or illegal. But let me give you an example of something that is "clearly wrong" but sometimes legal. Let us assume that you buy something (or are paid cash) and the amount is $100. If you pay $20 tax, then we say you are taxed at 20% and the amount becomes $80. So far so good. Now let's suppose that you claim back that $20 and you put it in your pocket. You still have the $80 (or the item you bought). So you net is at $100 whether in cash fully or $20 cash and something worth $80. Now, let us suppose that in this scenario the cash was paid to you (I am specialising away from the case where you are buying something). You thus have $100, and effectively there was no tax. Now assume you go back to the tax office and you tell them that you are reclaiming another 20% on top of the 20% you paid and then reclaimed. Now, suddenly you have $120. You got $40 in tax reclaims but only ever paid $20. This is essentially the cum-ex scandal. [1] Once with and once without. The with part is the tax you reclaimed; the without is the tax you reclaimed with no base for it at all. Note that these are not tax credits, it's hard cash! The cum-ex tactic is not always illegal, and this is why I say that legality is sometimes dubious (but not always). The reason why they could steal 50 BILLION EUROS from the German tax office is exactly because 1) the banks were and are in on it and 2) they lobbied for and blurred the lines of legality. Apparently the German tax office still thinks, even today, that claiming $40 after only ever paying $20 somehow makes sense. [1] https://cumex-files.com/ https://cumex-files.com/

salawat 7y ago
Mmmm. There must be some epic level shenanigans going on somewhere to make that kind of tax liability recording even possible. A stock can only have a single holder of record, and only one dividend payment should ever be made to whoever the holder of the stock was at the time of the payment. https://www.bloomberg.com/news/articles/2019-09-02/the-german-tax-case-putting-the-entire-finance-industry-on-trial https://www.bloomberg.com/news/articles/2019-09-02/the-germa... If that article is to be believed, I'd suspect there was a bank who needs some serious auditing; because there is simply no way there should be any ambiguity as to who the stockholder of record is at that time; and the issuance of a multitude of "tax certificates" to multiple individuals implies they fundamentally mishandled that particular taxation event. Transactions are atomic, and serial in nature as far as finances go. Automated or manual. They must resolve down to chronological order. This is also part of the reason the Feds hate structuring, and will stamp it out in any form they can get enough information about in order to recognize it. Don't be like these people ever. There is no moral or fiscal imperative to commit or concoct structures/mechanisms capable of becoming or facilitating tax fraud. Hell, this exact kind of chicanery is why AML/KYC/tax law ends up making normal financial service providing such a slog; because every link in the chain is yet another gear in the machine. If it seems like you're having to go through lot of hoops to do a relatively straightforward transfer of value, odds are, you may be taking part in some form of either structuring or other financial engineering. If you think that's a tenable of affairs, have fun, but when it comes back around, don't be surprised if there isn't much sympathy to be found.
- mikorym 7y ago
  > A stock can only have a single holder of record, and only one dividend payment should ever be made to whoever the holder of the stock was at the time of the payment. Yes you are right with this. I have suggested a way to handle this to my colleagues informally, but I don't work with the tax offices themselves. What I would do is to have each share at the atomic level as you mention to have a serial number. If you reclaim for 100 shares then you need to supply 100 serial numbers. With regards to the banks, absolutely, they are the critical step in this kind of fraud. The serial number solution does have one weak point: You can use "unused" serial numbers for your reclaim or you can use serial numbers from someone who lives in a country that does not participate in the bilateral treaty that allows the reclaim. This latter example is also essentially using "unused" serial numbers. Typically there are many billions of dollars of withholding tax that remains unclaimed for whatever reason, sometimes even just ignorance. But at the very least this allows you to be better off than today. The tax offices, if they are competent, can even try to attach each serial number to a person, but there are privacy laws that can prevent this. Another subtle point is that a dividend payment event is not the same thing as receipt of the dividend in your account. Typically, the receipt of the dividend is the critical point that tax offices want, not proving ownership of the dividend. This is why the banks have so much power here. They essentially prove payment receipt, not dividend ownership. The logic is that you can't have had the payment into your account if you didn't have ownership of the dividend. There are also other examples of fraud such as forging the country of residence of the shareholder. Oh yes, and then lastly: Apparently around 2009 some countries turned a blind eye to cum-ex because they saw it as a way to "boost the recovering economy" by pushing up bank revenues... ¯\_(ツ)_/¯

salawat 7y ago

Mmmm. There must be some epic level shenanigans going on somewhere to make that kind of tax liability recording even possible. A stock can only have a single holder of record, and only one dividend payment should ever be made to whoever the holder of the stock was at the time of the payment. https://www.bloomberg.com/news/articles/2019-09-02/the-german-tax-case-putting-the-entire-finance-industry-on-trial https://www.bloomberg.com/news/articles/2019-09-02/the-germa... If that article is to be believed, I'd suspect there was a bank who needs some serious auditing; because there is simply no way there should be any ambiguity as to who the stockholder of record is at that time; and the issuance of a multitude of "tax certificates" to multiple individuals implies they fundamentally mishandled that particular taxation event. Transactions are atomic, and serial in nature as far as finances go. Automated or manual. They must resolve down to chronological order. This is also part of the reason the Feds hate structuring, and will stamp it out in any form they can get enough information about in order to recognize it. Don't be like these people ever. There is no moral or fiscal imperative to commit or concoct structures/mechanisms capable of becoming or facilitating tax fraud. Hell, this exact kind of chicanery is why AML/KYC/tax law ends up making normal financial service providing such a slog; because every link in the chain is yet another gear in the machine. If it seems like you're having to go through lot of hoops to do a relatively straightforward transfer of value, odds are, you may be taking part in some form of either structuring or other financial engineering. If you think that's a tenable of affairs, have fun, but when it comes back around, don't be surprised if there isn't much sympathy to be found.

mikorym 7y ago
> A stock can only have a single holder of record, and only one dividend payment should ever be made to whoever the holder of the stock was at the time of the payment. Yes you are right with this. I have suggested a way to handle this to my colleagues informally, but I don't work with the tax offices themselves. What I would do is to have each share at the atomic level as you mention to have a serial number. If you reclaim for 100 shares then you need to supply 100 serial numbers. With regards to the banks, absolutely, they are the critical step in this kind of fraud. The serial number solution does have one weak point: You can use "unused" serial numbers for your reclaim or you can use serial numbers from someone who lives in a country that does not participate in the bilateral treaty that allows the reclaim. This latter example is also essentially using "unused" serial numbers. Typically there are many billions of dollars of withholding tax that remains unclaimed for whatever reason, sometimes even just ignorance. But at the very least this allows you to be better off than today. The tax offices, if they are competent, can even try to attach each serial number to a person, but there are privacy laws that can prevent this. Another subtle point is that a dividend payment event is not the same thing as receipt of the dividend in your account. Typically, the receipt of the dividend is the critical point that tax offices want, not proving ownership of the dividend. This is why the banks have so much power here. They essentially prove payment receipt, not dividend ownership. The logic is that you can't have had the payment into your account if you didn't have ownership of the dividend. There are also other examples of fraud such as forging the country of residence of the shareholder. Oh yes, and then lastly: Apparently around 2009 some countries turned a blind eye to cum-ex because they saw it as a way to "boost the recovering economy" by pushing up bank revenues... ¯\_(ツ)_/¯