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The EBA wants to strengthen measures to combat dividend tax fraud

Published on June 26, 2020 - 2 mins reading time
Bank watch
In its 10-point roadmap, the European Banking Authority (EBA) notes that European national authorities differ in their assessment of dividend arbitrage systems. The EBA calls on credit institutions to adopt "a global view of the risks" induced by these techniques.

Combating dividend tax fraud

Almost 2 years after the "cum-cum" and "cum-ex" dividend scandals , the European Banking Authority, mandated in 2018 by Parliament to investigate the matter, has issued its findings on dividend arbitrage.

At the time, two financial manipulations on dividends resulted in several European countries losing out on nearly 55 billion euros in taxes. While Germany was by far the hardest hit, France, Spain, Italy, Austria, the Netherlands, Norway, Finland and Switzerland were not spared. The "cum-cum" arrangement, which enables owners of stock market shares to avoid tax on dividends, cost Germany 24.6 billion euros, France 17 billion euros and Italy 4.5 billion euros. Cum-ex", an extreme version of dividend arbitrage, cost Germany 7.2 billion euros, Denmark 1.7 billion euros and Belgium 201 million euros.

Having completed its investigation, the European Banking Authority points out that these "dividend arbitrage systems" were made possible by the significant differences in tax regimes and assessments by national authorities between member states. It now intends to step up its action against dividend fraud with a detailed 10-point roadmap.

Lack of coordination between member states

Eight supervisors involved in the fight against money laundering and the financing of terrorism (LCB-FT) affirmed that "cum-ex" arrangements were offenses, in accordance with Article 3 of the anti-money laundering directive, while one suggested the opposite. The other supervisors considered that dividend arbitrage was not strictly a crime under their national law. According to the EBA, these arrangements "undermine the integrity of the financial system" in the EU.

One of the objectives announced by the European Banking Authority is to encourage national authorities and credit institutions to adopt "a global view of the risks" induced by these arbitrage techniques. The exchange of information between prudential and anti-money laundering authorities is also to be strengthened.

A second formal survey will be conducted by the EBA to assess the specific measures taken by financial institutions and national authorities.