On 19th November, 5 Saint Andrews Hill published an article about the alleged tax fraud being investigated in Germany. It explains that under certain double taxation treaties, offshore investors are entitled to a refund of dividend withholding tax on shares held in domestic corporations. It is noted that not all EU jurisdictions operate such a scheme and, in particular, the UK does not operate such a scheme. Cum-Ex is said to be one of the refund models, which use rapid share transactions to contrive successive multiple ownership of shares to facilitate multiple refunds of WHT from European tax authorities. The comprehensive article provides a briefing on the scandal and its implications for and in the UK, and recommends that FCA rules, taken together with EU Market Abuse Regulation, clearly indicate that firms potentially exposed to or involved in dividend arbitrage should conduct extended due diligence on relevant clients and transactions; and, where any clients or transactions raise any concerns, these should be properly documented and considered for reporting to the FCA.
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