CumEx fraud – time for Dutch civil actions?

The CumEx-fraud has been in the news a lot recently. Research by the Dutch research platform Follow the Money in context of the CumEx Files indicates that it appears that the Netherlands was hit relatively the hardest by the large-scale dividend fraud known as the CumEx fraud. The Dutch tax authorities are said to have been cheated out of potentially 27 billion euros in the period 2000-2020 as a result of the fraud in claiming back dividend tax (see link).

How could this large-scale fraud occur and what can we do about it now?

Dividend fraud

Bankers, tax specialists and pension funds, among others, have allegedly defrauded the tax authorities of several European countries by wrongfully claiming back dividend tax. There are roughly two flavours of the so-called dividend fraud: CumEx and CumCum. Follow the Money explains the difference as follows: CumEx involves skimming dividends that have not even been paid, or claiming back dividend tax several times while it has only been paid once. CumCum occurs when a shareholder who has paid dividend tax and is not entitled to a refund of it, uses a construction to trade that ‘right’ to a refund, so that another party can claim a refund. For example: by ‘lending’ their shares to a Dutch bank or pension fund just before the dividend is paid out, which reclaims the dividend tax, after which the shares are returned to the foreign shareholder and the proceeds are distributed.

Criminal investigations and proceedings

The CumEx fraud came to light in 2011, after a whistleblower reported it to the German Public Prosecutor’s Office. Since then, large-scale criminal investigations have been conducted into the parties involved in the fraud. Last July, the German Bundesgerichtshof ruled that the CumEx trade is prosecutable. This ruling throws the doors wide open for the German Public Prosecutor to prosecute more than 1,000 suspects, including the Dutch CumEx trader Frank Vogel. The German prosecutor is reportedly also investigating the role of the Dutch bank ABN Amro in the CumEx trade.

Also within Europe, the political and social pressure to investigate and take action against parties involved in the CumEx trade has increased significantly in recent years. The European Parliament, for example, advocates measures for the unjustified recovery of dividend tax from the tax authorities of Member States and calls on the European Commission to present a proposal for a European financial police as soon as possible. Moreover, the European Banking Authority (EBA) has announced that it will investigating the CumEx fraud in European member states.

Civil law options

Besides the criminal law route there are also civil law options to hold the parties involved in the CumEx fraud liable and to reclaim the unduly paid out dividend tax. For example, the Belgian and Danish tax authorities have initiated civil proceedings against companies, pension funds and individuals that are or have been involved in the CumEx trade. One of the advantages of civil proceedings over criminal proceedings is that the wrongfully paid dividend tax can be reclaimed more quickly. The civil route may also offer a solution for the Dutch tax authorities to recover the allegedly 27 billion euros of wrongfully paid dividend tax. In doing so, it could consider join forces with foreign tax authorities. This would also send a strong signal!

Questions? Please contact Gerben Smit, Barbara Elion and/or Tanja Schasfoort.

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