New BFH ruling on Cum-Ex: Cum-Ex transactions inadmissible under tax law
The Federal Supreme Court (BGH) had already ruled in its judgement of 28 July 2021 (judgement of 28 July 2021 - 1 StR 519/20) that the tax models known to the general public as so-called "Cum-Ex transactions" are to be regarded as tax evasion under criminal law. This assessment has now also been followed by the Federal Fiscal Court (Bundesfinanzhof, BFH) in its recent decision of 15 March 2022, in which it ruled that multiple refunds of taxes on capital gains (stock dividends) that had only been paid once were also inadmissible under tax law.
The case was based on the appeal of a US pension fund, which was exempt from capital from capital gains tax against a ruling of the Cologne Fiscal Court (Finanzgericht (FG)) (ruling of 19 July 2019 - 2 K 2672/17). At the time, the Cologne Fiscal Court had dismissed the action against the state treasury for refusing to refund (allegedly wrongly withheld) capital gains tax in the amount of 27 million euros and assessed the pension fund's refund application as an attempt, impermissible under tax law, to obtain a multiple refund of a tax that had only been paid once. The pension fund, on the other hand, argued with reference to an earlier BFH ruling and its supposed position as beneficial owner (§ 39 (2) no. 1, 1 AO) of the shares entitling it to dividends, that it was legally entitled to the requested tax refund.
The First Senate of the BFH dismissed the appeal of the plaintiff pension fund in its entirety and, with explicit reference to its earlier case law, denied the pension fund's position as beneficial owner within the meaning of the German Fiscal Code (AO) and thus also its entitlement to a tax refund for allegedly remitted capital gains tax. The "business concept" was exclusively aimed at "wanting to use uncertainties in the clear economic allocation of shares in such a way that a withholding tax once withheld might possibly be credited or paid out twice or even several times by the tax authorities". Participation in such a business concept does not establish the position as beneficial owner of the shares, so that no refund claim can arise from this.
With this, clarity should now prevail. In the opinion of both the criminal courts and the tax courts, the implementation of so-called "Cum-Ex transactions" constitutes a tax scheme that fulfils the offence of tax evasion (§ 370 AO). At least from today's perspective, more than 10 years after the relevant period that had to be assessed. Those who had still hoped for tax recognition of these business models by the Federal Fiscal Court are likely to have been disillusioned by the ruling. In all likelihood, it will therefore be necessary in the future to take action in the context of pending criminal tax proceedings for "cum ex" transactions. "Cum-Ex transactions" - as is to be expected - will probably be largely dependent on classic core questions of criminal law. In the assessment of criminal liability, the focus of future criminal defence will therefore in all likelihood be on the processing of the individual involvement and knowledge of the accused, possible aspects of error, in particular when relying on the professional assessments of tax advisors and tax lawyers, as well as questions of procedural provability.