Dividend Stripping

Tax Law Experts Played Along

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German tax professors, teaching future generations how to avoid capital gains payments. Picture source: Reuters

Writing up expert opinions has always been a lucrative way for tax professors to moonlight, but it now emerges that some of Germany’s academic stars are implicated in the controversial tax scam known as “dividend stripping” in ways that are ethically dubious.

These tax law experts provided legal cover for financial institutions who used a short-selling technique to avoid capital gains taxes, essentially enabling two separate shareholders to claim tax rebates from the same dividend payment through short selling around the dividend record date. It is a technique that has cost German fiscal authorities an estimated €12 billion and which they are challenging as illegal tax avoidance.

The scandal has implicated most of Germany’s big banks, and many of the small ones, as well as foreign institutions and investors who sought to boost investment yields at the expense of German taxpayers.

The academic experts, many of whom occupy prestigious chairs in Germany’s public universities, offered legal opinions justifying the tactic, reaping handsome fees for themselves in the process. Some went even further and published these opinions as academic papers without disclosing they had been paid by interested parties.

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