Handelsblatt Exclusive

Report: Commerzbank Helped Foreign Investors Bilk German Taxpayers

Commerzbank hq dpa
Commerzbank headquarters.
  • Why it matters

    Why it matters

    Commerzbank’s questionable dealings with foreign investors may have cost the German government more than €1 billion a year in lost tax revenue.

  • Facts


    • Commerzbank was bailed out during the global financial crisis and remains nearly 20-percent owned by the German government.
    • Foreign investors used Commerzbank and other German banks to claim tax rebates that are actually reserved for domestic investors. They did it by loaning their shares in blue-chip DAX companies to the bank around the time a dividend is paid out.
    • Commerzbank has offered the service to foreign investors at least 250 times between 2013 and 2015, research showed.
  • Audio


  • Pdf

Commerzbank, Germany’s second-largest bank and partially government-owned, played an active role in helping foreign investors exploit a tax loophole that artificially lowered German tax payments by around €1 billion, or $1.1 billion, a year, research by Handelsblatt and a group of global media publications shows.

The trick allowed investors to lower their capital-gains tax payments and often claim maximum tax refunds from the German government by combining an investment technique called “dividend stripping’’ with the help of domestic banks such as Commerzbank.

Experts say the practice allowed foreign investors to avoid paying at least €1 billion in taxes each year in Germany for more than a decade. It is unclear what part of that sum was enabled with the help of Commerzbank. Data obtained from an unnamed source suggest it played a leading role.

The data was first obtained by New York-based ProPublica, an investigative journalism non-profit. Handelsblatt, the German television broadcaster ARD and the Washington Post newspaper sifted through extensive data to discover how the business worked, who were the participants and how much they saved on German capital gains taxes.

Dividend stripping is a once-legal technique used in the United States and elsewhere that enables investors to exploit the cyclical variations in a stock’s share price before and after a company pays out millions of euros in dividends. In Germany, the technique also exploited a German tax loophole to let foreign investors underpay or claim unjustified exemptions from German capital-gains taxes.

With the help of banks such as Commerzbank, foreign investors were able to claim tax rebates that are actually reserved for domestic investors. They did it by loaning their shares in blue-chip DAX companies to the banks for a short period around the time a dividend is paid out. The bank could then claim higher rebates than foreign investors are otherwise entitled to.

After the costs of dividend stripping came to light, Germany formally proposed legislation to outlaw the practice at the start of this year. The government may now attempt to pursue international investors or the domestic banks cooperating to reclaim some of the money it paid out through unintended refunds.

The loophole used by foreign investors is just one of many scandals surrounding dividend stripping that has gripped Germany in the past few years. Many investors, also with the help of more than one hundred global banks, for the past decade would buy millions of shares for a short period of time, using so-called short-selling techniques, in order to claim multiple rebates on capital-gains taxes. That loophole was finally closed in 2012.

The new data obtained by ProPublica, details how German banks and investment funds cooperated with foreign investors over much of the last decade to exploit a legal tax loophole to the detriment of German taxpayers.

The business had names such as “Yield Enhancement” or “Cum Cum Trade,” which refers to the Latin word “with”, meaning “including’’ as in the dividend.

Commerzbank declined to comment specifically on the allegations but told Handelsblatt: “We ensure through extensive internal systems and controls that all trading activities are in compliance with existing laws.”

Want to keep reading?

Subscribe now or log in to read our coverage of Europe’s leading economy.