Bankers in Tax Scandal Trial Fear ‘Financial Annihilation’  

(Bloomberg) --

The two former investment bankers standing trial in Germany over their role in controversial dividend-tax deals have sought to avoid jail time by cooperating with authorities. Now the pair face another threat: a massive, 207 million euros ($233 million) tax bill slapped on them by the Federal Tax Office.

Martin Shields and Nicholas Diable were served with letters by the tax authorities outside the courtroom in Bonn on Feb. 19, according to a court spokesman. The letter, a required step before any tax order can be issued, raises the prospect that the two defendants will have to pick up the tab for the damage stemming from the tax deals under review in the case dating back to 2009.

The latest development, which is independent of any sanction the court may issue if it convicts the two, is a setback for the men, who had aided the investigation with detailed insights into the world of so-called Cum-Ex trades. Making them pay for the overall tax losses also risks deterring other suspects who now may have second thoughts about collaborating.

Stefan Kirsch, a lawyer for Diable, said his client views such a bill tantamount to “financial annihilation.” He declined to comment further, as did Hellen Schilling, the attorney for Shields. A spokesman for the Cologne prosecutors declined to comment.

Germany’s Finance Ministry, which supervises the Federal Tax Office, said the authorities can’t comment on individual tax cases.

Shields and Diable are liable for the amount because they participated in tax crimes that lead to the losses, the tax office wrote in the letter, according to a transcript of the Feb. 19 hearing. The agency lists four funds which received tax refunds based on Cum-Ex transactions.

In the Bonn case, Shields and Diable are accused of helping organize deals that led to more than 400 million euros in lost taxes. Neither man is challenging the facts that prosecutors have assembled, and the court will ultimately rule on whether what they did was criminal.

On Feb. 11, the court said Shields may have to pay back 14.7 million euros, equivalent to what he made in the deals. The Federal Tax Office’s move would make him and Diable liable for the complete tax damage of the year in question.

Cum-Ex trades, named for the Latin term for “With-Without,” took advantage of German tax laws and allowed multiple investors to claim refunds on a dividend levy that was paid only once, prosecutors say. Lawmakers say the total damage created by the practice may have exceeded 10 billion euros in lost tax revenue.

To contact the reporter on this story: Karin Matussek in Berlin at kmatussek@bloomberg.net

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net, Benedikt Kammel, Karin Matussek

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