On 23 September 2020, the Frankfurt District Court in Germany held that Deutsche Bank was not liable to compensate German private bank M.M. Warburg (Warburg) for its 167 million euro tax bill in connection with cum-ex transactions. Why is this case relevant?
Coverage of cum-ex has only recently started to gain considerable traction globally. At the same time, litigation such as the case of Warburg against Deutsche Bank,along with other recent cases, might indicate that the “cum-ex saga” may have moved to the next level: parties involved in cum-ex trading schemes are suing each other in order to recoup the costs.
In an article for Financier Worldwide Magazine's Corporate Tax Report, our Guidehouse experts James Siswick and Alexandra Will look at cum-ex transactions in light of the recent increase in litigation. It provides background on cum-ex schemes and highlights the complexity and magnitude of the issue.
Cum-ex is not only complex; it also relates to transactions made typically eight or more years ago.
It is only now, as criminal and civil cases come to courts, that the issue is gaining greater prominence outside the relevant jurisdictions. As more parties suffer losses as a result of repayment demands or court orders for repayment of profits, they may consider how to pass on some or all of those costs to other participants. A wider circle of financial services firms, with varying degrees of involvement in cum-ex, may therefore now face legal, financial, and reputational risks.
It is essential for senior management teams and heads of legal and compliance to understand their organization’s exposure to potential claims and prosecution so that they can prepare to protect their organization. This process often starts with an internal investigation in order to gain the necessary understanding to be able to proactively address any potential risks.
When the music stops, make sure you aren’t left standing!