Members of the European Parliament’s Subcommittee on Tax Matters (FISC) have taken stock, with several experts, on Wednesday 24 February, of tax arrangements like ‘CumEx’, ‘CumCum’ and, more generally, on withholding tax recovery systems within the EU.
‘Cum/Ex’-type dividend arbitrage strategies use rapid share transfers to be reimbursed several times for a tax paid only once. In the ‘Cum/Ex Files’ case in 2018, European banks were able to evade tax on share dividends in excess of €55 billion over 15 years in 11 Member States.
At the request of the European Parliament, the European Securities and Markets Authority (ESMA) looked into the matter and published the results of its survey in September 2020 (see EUROPE 12567/5).
ESMA has concluded that these schemes fall within the remit of EU tax policy and therefore believes that an initial legislative and supervisory response should be sought within the limits of the legislative and supervisory framework, ESMA's head of markets and data reporting, Fabrizio Planta, reminded MEPs.
Within the limits of its mandate, ESMA had nevertheless proposed two legislative amendments for better detection of such systems, including an amendment to remove legal limitations on the exchange of information between national competent authorities and tax authorities.
According to Christoph Spengel, Professor of International Corporate Taxation at the University of Mannhein, ‘CumEx’ tax arrangements have not completely disappeared, at least not in Germany.
“Most experts believe that this loophole was closed in 2012 in Germany. However, this assumption is false. It is still possible to obtain a refund of withholding tax on dividends, even if they are not paid”, he said.
In order to better detect these practices, Mr Spengel recommends the following: more effective joint supervision of capital market participants, coordinated supervision of activities, mutual assistance by public prosecutors in different countries, and efficient exchange of information between supervisory bodies.
“How is it possible, that, we journalists, make a couple of phone calls and connect the dots, with the help of our colleagues in other European countries, and the authorities and supervisors cannot do the same across the Union?”, wondered Olaya Argüeso Pérez, Editor-in-Chief of Correctiv which revealed the case at the time.
In her view, the real obstacle to cooperation lies in the complexity of European laws. “While financial markets works globally, laws are enforced locally. And criminals take advantage of that mismatch for their own profit and to European tax payers disadvantage”, she regretted.
Several MEPs have asked ESMA to undertake a more in-depth investigation into what went wrong and to identify what improvements need to be made at both European and national level. “We need to study this phenomenon, not only in the past, but also in the present”, pointed out MEP Sven Giegold (Greens/EFA, Germany). (Original version in French by Marion Fontana)