Pub Date : 2020-08-11DOI: 10.1093/oso/9780198859673.003.0006
R. Collier
This chapter examines how the cum-ex transaction has been assessed to date before arguing that those assessments reflect a limited understanding of the real complexity and wider causes and implications of schemes such as the cum-ex trade. The reaction to cum-ex in the media and in political circles has focused on the scale of financial loss to the state and on the culpability of the individuals involved. This response to cum-ex involves relatively little focus on the nature of the transaction itself or how it came about. However, this chapter raises wider questions as to what transactions like cum-ex tell us about the nature of banks and inter-bank market activities, and what they reveal about tax systems. The chapter also explains what is meant by talking of bank ‘misconduct’, and considers the problematic distinction between tax avoidance and tax evasion.
{"title":"Assessing the Cum-Ex Trade","authors":"R. Collier","doi":"10.1093/oso/9780198859673.003.0006","DOIUrl":"https://doi.org/10.1093/oso/9780198859673.003.0006","url":null,"abstract":"This chapter examines how the cum-ex transaction has been assessed to date before arguing that those assessments reflect a limited understanding of the real complexity and wider causes and implications of schemes such as the cum-ex trade. The reaction to cum-ex in the media and in political circles has focused on the scale of financial loss to the state and on the culpability of the individuals involved. This response to cum-ex involves relatively little focus on the nature of the transaction itself or how it came about. However, this chapter raises wider questions as to what transactions like cum-ex tell us about the nature of banks and inter-bank market activities, and what they reveal about tax systems. The chapter also explains what is meant by talking of bank ‘misconduct’, and considers the problematic distinction between tax avoidance and tax evasion.","PeriodicalId":105742,"journal":{"name":"Banking on Failure","volume":"67 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-08-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127224673","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-08-11DOI: 10.1093/oso/9780198859673.003.0005
R. Collier
This chapter deals with the closing of the cum-ex trade in Germany from 2012 and its aftermath. It explains how the trade came to be challenged and ultimately (after various failed attempts) successfully defeated by the authorities by means of a fundamental—yet simple—modification of the rules governing the obligation to apply dividend withholding tax. It then outlines the ongoing response to the cum-ex trade by the German tax authorities and its impact. The chapter also deals with the other aspects of the fallout from the cum-ex trade, including the German parliamentary enquiry into the trade and the impact on so-called ‘cum-cum’ trades. Besides the actions within Germany, there have also been developments in other countries, and the chapter considers these with reference to Austria and Denmark. The chapter ends by considering possible future developments, predicting that it will be years before the full effects of the cum-ex affair are finally clear.
{"title":"The Closure of Cum-Ex and the Aftermath","authors":"R. Collier","doi":"10.1093/oso/9780198859673.003.0005","DOIUrl":"https://doi.org/10.1093/oso/9780198859673.003.0005","url":null,"abstract":"This chapter deals with the closing of the cum-ex trade in Germany from 2012 and its aftermath. It explains how the trade came to be challenged and ultimately (after various failed attempts) successfully defeated by the authorities by means of a fundamental—yet simple—modification of the rules governing the obligation to apply dividend withholding tax. It then outlines the ongoing response to the cum-ex trade by the German tax authorities and its impact. The chapter also deals with the other aspects of the fallout from the cum-ex trade, including the German parliamentary enquiry into the trade and the impact on so-called ‘cum-cum’ trades. Besides the actions within Germany, there have also been developments in other countries, and the chapter considers these with reference to Austria and Denmark. The chapter ends by considering possible future developments, predicting that it will be years before the full effects of the cum-ex affair are finally clear.","PeriodicalId":105742,"journal":{"name":"Banking on Failure","volume":"78 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-08-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123087600","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-08-11DOI: 10.1093/oso/9780198859673.003.0003
R. Collier
This chapter provides an explanation of how the cum-ex trade was designed to work in the German equities market. It describes the features of the market infrastructure that made the German share market fertile ground for the cum-ex trade, including the role of Clearstream as Germany’s central securities depository, and the way that dividends paid by German companies were treated for tax purposes. It then contrasts the intended operation of the settlement system with the unintended operation of the system that was exploited by the cum-ex trade. Finally, it explains that some German tax specialists took the view that the dividend and tax credit generated by the cum-ex trade should be respected for all relevant tax purposes in Germany. This was essential for the success of the cum-ex trade as it enabled the apparent tax credit to be repaid in cash or allowed as a credit to reduce an existing tax liability.
{"title":"The Emergence of Cum-Ex","authors":"R. Collier","doi":"10.1093/oso/9780198859673.003.0003","DOIUrl":"https://doi.org/10.1093/oso/9780198859673.003.0003","url":null,"abstract":"This chapter provides an explanation of how the cum-ex trade was designed to work in the German equities market. It describes the features of the market infrastructure that made the German share market fertile ground for the cum-ex trade, including the role of Clearstream as Germany’s central securities depository, and the way that dividends paid by German companies were treated for tax purposes. It then contrasts the intended operation of the settlement system with the unintended operation of the system that was exploited by the cum-ex trade. Finally, it explains that some German tax specialists took the view that the dividend and tax credit generated by the cum-ex trade should be respected for all relevant tax purposes in Germany. This was essential for the success of the cum-ex trade as it enabled the apparent tax credit to be repaid in cash or allowed as a credit to reduce an existing tax liability.","PeriodicalId":105742,"journal":{"name":"Banking on Failure","volume":"89 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-08-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123137342","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-08-11DOI: 10.1093/oso/9780198859673.003.0007
R. Collier
This chapter deals with the issues and implications of misconduct scandals involving banks and the inter-bank market. The discussion begins by surveying the significant incidence of misconduct by banks across the globe and then presents an explanation for this based on systemic features of the banking market. This includes an account of the impact of a number of profound changes to the banking business model which have taken place in the last half-century as banks have shifted to a highly transactional business model and discovered that tax systems around the globe present fertile opportunities for exploitation. The discussion includes an analysis of why it is considered that the banks’ internal and external control mechanisms have materially failed.
{"title":"Banks and Misconduct","authors":"R. Collier","doi":"10.1093/oso/9780198859673.003.0007","DOIUrl":"https://doi.org/10.1093/oso/9780198859673.003.0007","url":null,"abstract":"This chapter deals with the issues and implications of misconduct scandals involving banks and the inter-bank market. The discussion begins by surveying the significant incidence of misconduct by banks across the globe and then presents an explanation for this based on systemic features of the banking market. This includes an account of the impact of a number of profound changes to the banking business model which have taken place in the last half-century as banks have shifted to a highly transactional business model and discovered that tax systems around the globe present fertile opportunities for exploitation. The discussion includes an analysis of why it is considered that the banks’ internal and external control mechanisms have materially failed.","PeriodicalId":105742,"journal":{"name":"Banking on Failure","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-08-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114392669","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-08-11DOI: 10.1093/oso/9780198859673.003.0004
R. S. Collier
This chapter shows how the basic cum-ex trade was subject to recurrent (and ingenious) further refinements through financial engineering in order to massively amplify its effectiveness and profitability. It identifies six separate constraints on a seller implementing a ‘stand-alone’ approach to cum-ex trading in the open market. These constraints are discussed in turn, before an exploration of the actions adopted by cum-ex traders to overcome each of them. The chapter then considers various refinements made to the design and implementation of the cum-ex trade to broaden the scale of trading activity, to improve the cosmetics and efficiency of the trade, and to boost its profitability both by devising a way to permit multiple repetitions of the basic trade between the same counterparties and also by cutting the costs of implementing the trade. Some further changes were made to sidestep efforts by the tax authorities to close down the cum-ex trade. The refinements to the cum-ex trade were continually layered onto the basic transaction, leading ultimately to colossally complex transaction structures.
{"title":"The Evolution of Cum-Ex","authors":"R. S. Collier","doi":"10.1093/oso/9780198859673.003.0004","DOIUrl":"https://doi.org/10.1093/oso/9780198859673.003.0004","url":null,"abstract":"This chapter shows how the basic cum-ex trade was subject to recurrent (and ingenious) further refinements through financial engineering in order to massively amplify its effectiveness and profitability. It identifies six separate constraints on a seller implementing a ‘stand-alone’ approach to cum-ex trading in the open market. These constraints are discussed in turn, before an exploration of the actions adopted by cum-ex traders to overcome each of them. The chapter then considers various refinements made to the design and implementation of the cum-ex trade to broaden the scale of trading activity, to improve the cosmetics and efficiency of the trade, and to boost its profitability both by devising a way to permit multiple repetitions of the basic trade between the same counterparties and also by cutting the costs of implementing the trade. Some further changes were made to sidestep efforts by the tax authorities to close down the cum-ex trade. The refinements to the cum-ex trade were continually layered onto the basic transaction, leading ultimately to colossally complex transaction structures.","PeriodicalId":105742,"journal":{"name":"Banking on Failure","volume":"11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-08-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130799264","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-08-11DOI: 10.1093/oso/9780198859673.003.0008
R. Collier
This chapter is concerned with the question of why tax is so often at the heart of highly structured trades entered into by banks. After first considering the position of banks in relation to tax systems, it sets out the reasons why banks have a unique ability to exploit such systems in order to generate revenue streams for their business. It then discusses the features in a tax system that have a tendency to contribute to the process by which rules in that system are exploited. These features include both the substantive tax rules and the arrangements for the administration of tax systems. The discussion explains why the fragmentation and inordinate complexity of the rules and the manner in which they are enforced and administered often have the collective and paradoxical effect of facilitating, rather than hindering, the exploitation of the tax system.
{"title":"Banks and Tax Systems","authors":"R. Collier","doi":"10.1093/oso/9780198859673.003.0008","DOIUrl":"https://doi.org/10.1093/oso/9780198859673.003.0008","url":null,"abstract":"This chapter is concerned with the question of why tax is so often at the heart of highly structured trades entered into by banks. After first considering the position of banks in relation to tax systems, it sets out the reasons why banks have a unique ability to exploit such systems in order to generate revenue streams for their business. It then discusses the features in a tax system that have a tendency to contribute to the process by which rules in that system are exploited. These features include both the substantive tax rules and the arrangements for the administration of tax systems. The discussion explains why the fragmentation and inordinate complexity of the rules and the manner in which they are enforced and administered often have the collective and paradoxical effect of facilitating, rather than hindering, the exploitation of the tax system.","PeriodicalId":105742,"journal":{"name":"Banking on Failure","volume":"27 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-08-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126669962","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-08-11DOI: 10.1093/oso/9780198859673.003.0009
R. Collier
This concluding chapter assesses the central policy issues that are raised by the discussion in this book and explores possible directions to address them. It draws out three major themes that emerge from the discussion so far. These themes relate to (1) particularities of the banking business landscape and the tax rules for financial markets and products, (2) the nature and consequences of systemic complexity, and (3) the failure of governance and control mechanisms. Collectively, the themes explain not merely the recurrence of misconduct by banks in relation to tax systems, but they also support the starker conclusion that, in the absence of significant change, it is practically inevitable that misconduct of the sort seen in cum-ex will continue to occur.
{"title":"Conclusions","authors":"R. Collier","doi":"10.1093/oso/9780198859673.003.0009","DOIUrl":"https://doi.org/10.1093/oso/9780198859673.003.0009","url":null,"abstract":"This concluding chapter assesses the central policy issues that are raised by the discussion in this book and explores possible directions to address them. It draws out three major themes that emerge from the discussion so far. These themes relate to (1) particularities of the banking business landscape and the tax rules for financial markets and products, (2) the nature and consequences of systemic complexity, and (3) the failure of governance and control mechanisms. Collectively, the themes explain not merely the recurrence of misconduct by banks in relation to tax systems, but they also support the starker conclusion that, in the absence of significant change, it is practically inevitable that misconduct of the sort seen in cum-ex will continue to occur.","PeriodicalId":105742,"journal":{"name":"Banking on Failure","volume":"120 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-08-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131263492","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-08-11DOI: 10.1093/oso/9780198859673.003.0002
R. Collier
This chapter examines the essential features of the cum-ex trade and outlines the ‘base template’ which was the foundation for the later refinement and expansion of the trade. The chapter begins by dealing separately with a number of the individual components that are relevant to the cum-ex trade: it explains the concept of dividend arbitrage, the workings of withholding taxes and tax credits, the distinction between cum-dividend and ex-dividend share sales, the idea of a settlement time lag, the workings of the dividend adjustment mechanism, and the concept of short selling. The discussion then explains how these individual components were assembled and synchronized in order to deliver the basic cum-ex trade.
{"title":"Cum-Ex in Concept","authors":"R. Collier","doi":"10.1093/oso/9780198859673.003.0002","DOIUrl":"https://doi.org/10.1093/oso/9780198859673.003.0002","url":null,"abstract":"This chapter examines the essential features of the cum-ex trade and outlines the ‘base template’ which was the foundation for the later refinement and expansion of the trade. The chapter begins by dealing separately with a number of the individual components that are relevant to the cum-ex trade: it explains the concept of dividend arbitrage, the workings of withholding taxes and tax credits, the distinction between cum-dividend and ex-dividend share sales, the idea of a settlement time lag, the workings of the dividend adjustment mechanism, and the concept of short selling. The discussion then explains how these individual components were assembled and synchronized in order to deliver the basic cum-ex trade.","PeriodicalId":105742,"journal":{"name":"Banking on Failure","volume":"19 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-08-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130455102","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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