European Tax Scandal Probes Heat Up With New Raids and Requests

More European countries are expanding probes into controversial Cum-Ex tax deals, with at least one nation seizing assets and conducting surprise raids.

Austria and Luxembourg are investigating hedge funds and other firms linked to the practice where shares were rapidly traded to earn duplicate tax refunds on dividend payments.

While German prosecutors have been most aggressive, other nations are scrambling to recoup billions of euros in lost tax revenue.

“The overall tax at stake in the Cum-Ex scandal has been estimated at 60 billion euros,” said Michelle Sloane, a London lawyer who specializes in tax disputes and white collar crime for law firm RPC. “The scandal has been widely referred to as the biggest tax swindle in the history of Europe.”

Luxembourg is probing seven investment firms and has conducted a series of raids, said Henri Eippers, a spokesman for the country’s judicial administration. The nation has seized just over 1 million euros ($1.18 million) from the accounts of the firms concerned.

The tiny country is the world’s second-largest fund market after the U.S., holding 8.9% of worldwide investment fund assets, according to the European Fund and Asset Management Association.

Meanwhile, several hundred miles east, Austria is investigating 15 firms and 30 people. Officials have sent mutual legal assistance requests to a dozen European countries, according to Elisabeth Taeubl, a spokeswoman for prosecutors in Vienna.

Austria is also part of a joint investigation with German prosecutors, she said.

Luxembourg has also sent several legal assistance requests to foreign authorities, Eippers said. An investigating judge, along with judicial police, are conducting the probe at this stage.

Danish and U.K. prosecutors have been stepping up their investigations in recent weeks. The U.K. Financial Conduct Authority is probing 14 firms and six people while Danish officials have contacted several traders who previously worked at large London banks as part of their investigation.

German tax authorities have been reviewing 391 open Cum-Ex cases totaling potentially illegal payouts of 4.3 billion euros ($5 billion). More than 20 bankers and three lawyers have been charged as part of the country’s criminal probe. German prosecutors secured convictions of two former traders earlier this year.

“The German authorities were first off the mark with a successful prosecution and given the large sums allegedly missing from public funds across Europe, this has spurred other European countries affected to ramp up their investigations,” Sloane said.

Cum-Ex transactions took advantage of a now-abandoned method of taxing dividends, that seemed to allow multiple refunds through a combination of short sales and other transactions.

Brussels’ prosecutor is also conducting an investigation and is cooperating with other countries. France is moving more slowly, with the financial prosecutor carrying out fact checks.

©2020 Bloomberg L.P.

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