Tax authorities in the German city of Frankfurt have raided the corporate offices of banking giant BNP Paribas.
According to the country’s Bild tabloid, the firm’s building in the westend district of Frankfurt (or ‘Bankfurt’ or ‘Mainhattan’) was raided by 130 investigators earlier this week. It is believed that the raid is related to investigations carried out by the prosecutor’s office in Cologne around fraud amounting to approximately €12bn. The investigations have been ongoing since 2017 and reportedly involve more than just BNP Paribas.
A statement given to Bild by BNP Paribas said that the firm was continuing to ‘cooperate fully with the investigating authorities within the framework of legal requirements’.
Reuters also reported on the scandal, known as the ‘cum-ex trading scheme’ or ‘German dividend tax scandal’.
It said: “The cum-ex trading scheme, which flourished after the 2008 credit crisis, involved the rapid dealing of company shares around dividend payout days, blurring stock ownership and allowing multiple parties to claim rebates.”
The slightly more-upmarket German newspaper Frankfurter Allgemeine Zeitung said that the public prosecutor’s office was investigating 58 people, including former and current employees of BNP Paribas. The firms JP Morgan, Bank of America (Merrill Lynch) and Morgan Stanley, Barclays, SEB, and Dekabank have also seen raids related to the tax fraud.
FAZ wrote: “Because banks and funds had dividend payments credited several times for tax purposes, the tax authorities are said to have incurred losses in the double-digit billions in the years before 2012. In total, the public prosecutor’s office in Cologne is investigating more than 1,500 people.”
It added: “Since 2007, a custodian bank would actually be obliged to withhold capital gains tax on dividend compensation payments from the short seller and to pay them to the tax office if it is the ‘sales order executing agent’ named in the Income Tax Act as responsible for the tax transfer. But this is questionable if the stock short sellers, like many special funds, have access to the stock market themselves as brokers.
“Deutsche Bank has also always described its role in such a way that, as a custodian bank, it only handles payments and share deliveries with its infrastructure. Thus, it would not be the body executing the sales order that would have had to ensure the withholding of tax.”
It went on: “In order to clear up ambiguities and deny responsibility, custodian banks such as BNP Paribas and Deutsche Bank had explicitly informed their clients in August 2008 in circulars that they would not pay taxes on dividend compensation payments for short sellers. However, this obviously did not prevent the public prosecutor’s office from opening an investigation against BNP Paribas in 2017.”