Deutsche Bank Wins Dismissal of Warburg Suit Over German Tax Scandal

M.M. Warburg & Co. lost a lawsuit over whether Deutsche Bank AG should pay a 167 million-euro ($195 million) tax bill related to the Cum-Ex scandal.

The Frankfurt Regional Court on Wednesday dismissed a suit by Warburg, saying Deutsche Bank wasn’t liable for the smaller lender’s taxes. Warburg contended that Deutsche Bank should have transferred the funds to the tax authorities about a decade ago in its role as a custodian for some of the disputed transactions.

But the court said that it might be possible for Warburg to sue another financial institution, ICAP, which sold the shares in the deal.

The case is one of many civil and criminal proceedings throughout Germany related to the Cum-Ex scandal. For years, investors and lenders were able to exploit the German revenue-collection system to receive multiple refunds on taxes paid on dividends.

Warburg said it’s considering an appeal. It may also sue the people who “brought the illegal transactions to its attention” or profited from it, including ICAP, the Hamburg-based lender said in a statement.

Deutsche Bank said in a statement that the court was right to say Warburg was responsible for the tax liabilities. ICAP didn’t immediately reply to emails and calls seeking comment.

Warburg filed the suit in 2018 to force Deutsche Bank to pay a 46 million-euro tax bill for the Cum-Ex transactions. Warburg this year extended the suit to seek a total of 167 million euros plus 21 million euros in interest.

Both banks are embroiled in the German Cum-Ex investigations as Cologne prosecutors are looking at their roles in the scandal. Warburg’s transactions were under review in the first Cum-Ex trial in Bonn that ended with convictions of two British traders in March. That trial centered on more than 30 deals in which managers at Hamburg-based Warburg were involved, according to findings in that case.

The Bonn court had seized 176 million euros from Warburg, saying that was the profit the private lender made from 2007 to 2011. A little later, the city of Hamburg ordered the bank to repay 167 million euros in tax refunds it received as part of Cum-Ex transactions. Warburg is challenging both rulings. In June, four of its bankers were indicted in Germany over the Cum-Ex scandal.

Warburg’s suit was aiming to dump both the Hamburg tax bill and the Bonn order on Deutsche Bank. Both attempts failed, the Frankfurt court said.

Cum-Ex trades, named for the Latin term for “With-Without,” took advantage of German tax laws that seemed to allow multiple investors to claim refunds on a dividend levy that was paid only once. The practice ended in 2012 when Germany revised its rules and the trades may have cost taxpayers more than 10 billion euros.

The suit is: LG Frankfurt, 2-18 O 386/18.

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