Lawyer arrested in connection with ‘cum-ex’ investigations
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Lawyer arrested in connection with ‘cum-ex’ investigations 13 July 2021Switzerland Reporter: Bob Currie
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Hanno Berger, a German lawyer accused of being involved in ‘cum-ex’ tax infringements, has been arrested, according to Swiss authorities.
He was detained in the Swiss canton of Grison following an extradition request from Germany, according to the Swiss Ministry of Justice.
Berger has denied wrongdoing and a legal representative, speaking on Berger’s behalf, said that he opposes extradition to Germany.
German authorities have estimated that cum-ex fraud has cost the country’s exchequer close to €10 billion in lost tax revenue.
According to law firm Rahman Ravelli, multiple European countries have been impacted by this practice, with upwards of €55 billion lost to treasury departments across more than 10 countries.
In February, the UK Financial Conduct Authority said that it is investigating eight individuals for cum-ex tax infringements.
In March 2020, two UK bank employees were handed suspended prison sentences in connection with their role in cum-ex trading in Germany. One of these traders was also given a €14 million fine.
In June, a former senior employee of German private bank MM Warburg was sentenced to more than five years in prison, becoming the first individual to be jailed in connection with cum-ex fraud.
Cum-ex refers to a method used to enable multiple parties to claim a refund on withholding tax paid on a share dividend.
The practice was most prevalent between 2005 and 2012, when rules were tightened to eliminate tax advantages that could be gained through dividend arbitrage.
The practice involved exploiting anomalies in rules governing share trading and withholding tax (WHT) reclamation, which enabled traders to generate virtual dividends through short sale of the stock. This triggered a tax rebate voucher, allowing the holder to reclaim WHT which had never been paid.
In practice, banks and brokers rapidly traded shares with dividend entitlement (cum) and without dividend (ex), enabling them to hide the identity of the actual owner while giving the impression that the share had multiple owners, each entitled to a tax reclaim.
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