News | Inequality / Social Struggles - Analysis of Capitalism - State / Democracy - Economic / Social Policy "Accessory to Theft by Failing to Act"

Former Die Linke MP Richard Pitterle on the "Cum-Ex" tax evasion scandal.

The ongoing investigation into the “Cum-Ex” dividends stripping affair has revealed that the amount of money diverted from German and EU tax revenue is much larger than previously thought, exceeding 55€ billion. The affair thus constitutes one of the largest tax evasion scandals in European history. The Rosa-Luxemburg-Stiftung spoke with Richard Pitterle, a lawyer in Stuttgart and former representative of Die Linke in the Bundestag investigatory committee on the scandal.

RLS: According to an international research network, German tax authorities lost 55.2 billion euro through the so-called “Cum-Ex” and “Cum-Cum” dealings. What did this look like?

Pitterle: The Cum-Ex and Cum-Cum deals were different, but both cost the taxpayers money. According to the unanimously approved conclusions of the investigatory committee, the clearly criminal Cum-Ex operation entailed paying capital gains taxes to the tax office, but receiving multiple receipts for this payment from the banks. The owner could use these receipts to reduce his own tax burden or have his income tax paid out. Cum-Ex was one of the largest acts of wealth redistribution from below to above in the history of the Federal Republic. The wealthy turned the tax office into a cash box.

When finance minister Schäuble made the Cum-Ex deals impossible in 2012 by decreeing that only one receipt could be issued when the tax was in fact paid, the Cum-Cum operations continued at full-speed. Cum-Cum deals involve a foreign investor who cannot offset a paid capital gains tax at home “lending” his multi-million stock package to a bank located in Germany shortly before the dividends date. The bank initially must pay 25 percent of its capital gains tax to the state out of its dividends, but is entitled – because a joint-stock company is not obliged to pay this tax – to be compensated by the tax office. The stocks then make their way back to the foreign investor, as they were only borrowed. The 25 percent tax reimbursement is shared between the bank and the investor. In this way, the investor who had no right to compensation receives some anyway at the taxpayers’ cost.

The establishment of the investigatory committee in the Bundestag forced the government to act, which is why the investment tax law was modified in July 2016 in an attempt to stop the Cum-Cum deals. An evaluation of this law was not presented to us by September 2017.

It has now become known that the federal government knew of these criminal activities and yet did not inform the affected EU member states. How do you interpret this move?

Based on today’s news, I deduce that the federal government only began warning the other EU states about these activities in 2015. That was the point in time at which my colleague from the Greens, Gerhard Schick, and I managed to get the parliamentary investigatory committee established in the Bundestag. The committee focused on the activities of the Cum-Ex mafia in Germany. We knew nothing about these actors’ activities across the EU. If the financial administration knew about the actions of this mafia in the EU and did not warn its neighbours, then I would describe this behaviour as accessory to theft by failing to act.

The Bundestag investigatory committee convened and did not determine any misbehaviour by the Ministry of Finance. In its minority opinion, Die Linke spoke of “state failure” by ignoring the clues that had been evident since 2002. Can you explain?

The financial administration was informed of the possibility of printing multiple receipts of paid capital gains taxes via a letter of the Bankers’ Association in December 2002. The letter from the association was not written out of respect for the state, but rather fears of being complicit.

Multiple whistle-blowers from the financial industry pointed to these activities, certain tax officials and civil servants of the state government as well. They were ignored.

The well-paid officials of the Finance Ministry and the banking supervision committee, “BaFin”, were essentially led on by the Cum-Ex swindlers for years. They were understaffed, overwhelmed by the topic’s complexity or did not feel responsible, and in this sense are largely liable for the billions of euro taken from the taxpayer’s wallet. Ultimately, the responsible finance minister bears the political responsibility.

How do you evaluate the actions of the bankers and financial investors involved?

Their behaviour was criminal, because everyone knew that the profits were based on tax reimbursements conducted multiple times, although the taxes were only paid once.

It is also not understandable that regional banks like HS Nordbank or the Baden-Württemberg state bank were involved in these deals to the detriment of the state. Those responsible belong in prison. It is a late success of the investigatory committee initiated by Gerhard Schick and me that the investigations are being widened, the first prosecutions are starting, and the tax office is demanding its money back. That makes our work worth it.

Translation by Loren Balhorn