Provisions for dividend gambit

Inside Commerzbank’s Trading Floor
What making money looks like: the Commerzbank trading floor. Source: Hannelore Foerster/Bloomberg

Commerzbank sent out a nine-page press release on its third-quarter figures and posted twin 49-page presentations on its website. But the lender hid the most explosive news of the day in its interim report on Thursday: On page 69, the bank admits that it now takes a different view of some controversial dividend transactions. It’s now set aside €10.5 million ($12.2 million) for possible payments of back taxes.

Until the end of 2015, many investors and banks had used so-called cum-cum transactions to reduce their tax burden. The background: Foreign investors are liable for a capital gains tax on dividends paid by German companies, which they can generally reduce from 25 percent to 15 percent through double taxation agreements. German shareholders, on the other hand, can fully recover the capital gains tax – to avoid the tax liability, many foreign investors lent or sold their shares to German banks shortly before the dividends were paid. The lenders collected the dividend and then transferred the shares back to the foreign investors, together with the dividend. The banks and investors split the tax savings.

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