Commerzbank to stop offering ‘cum/cum’ trades
Commerzbank is to stop carrying out a type of trade that allows foreign investors to avoid a German withholding tax on dividends, after drawing huge criticism for the practice.
Germany’s finance ministry last week lambasted so-called “cum/cum” trades as “illegitimate, since their only purpose is to get around the legal taxation of dividends”, after media reports revealed that a number of the country’s banks offered the trades, although it acknowledged that they are not illegal.
In the wake of the criticism, Michael Reuther, head of Commerzbank’s investment banking division, said on Wednesday that the lender would cease to offer the trades because they are “no longer socially accepted”.
“We as Commerzbank aspire to do business in a way that is socially accepted. We have consciously positioned ourselves like that,” he said in an interview with Germany’s Bild newspaper. “And if that is the case, then we have to deal with the fact that we will be judged against this aspiration.”
However, he rejected the suggestion that banks only changed their behaviour after being criticised. “You cannot anticipate every social change,” he said. “There will always be cases in which a service or a product is socially accepted today, but is not in five or 10 years’ time.”
Cum/cum trades involve a German bank borrowing a foreign investor’s shares in a company in the run-up to a dividend payment, allowing them to take advantage of a loophole in German law that allows domestic investors to claim a credit on taxes on dividends that foreign investors cannot claim.
Commerzbank’s involvement in the practice received particular attention because the bank remains part-owned by the German state after being rescued during the financial crisis.
The German finance ministry declined to comment on Commerzbank’s decision to stop carrying out the trades. However, Gerhard Schick, finance spokesman for the Green party, said the move was an “important success in the battle against tax tricks”.
“The step is the right one, but it comes far too late. Business at the expense of taxpayers should have been stopped at the very latest after they rescued the bank in 2008,” he said. “You can’t accept help with one hand, and with the other take more money out of the pocket of the helper!”
The German government in February drew up draft legislation that will close the loophole that allows cum/cum trades. Under the new law, which will be applied retroactively from January 1, 2016, the taxpayer will have to hold a share for at least 45 days either side of a dividend payout date before they can claim a tax credit.