Cit­i­group faces probe in Ger­many over trade

The Pak Banker - - COMPANIES/BOSS -

Cit­i­group is be­ing in­ves­ti­gated by Ger­man tax au­thor­i­ties over an eq­uity trad­ing strat­egy known as "cum-ex," or "div­i­dend strip­ping," the U.S. bank said on Tues­day.

Div­i­dend strip­ping in­volves buy­ing a stock just be­fore its div­i­dend rights ex­pire, then sell­ing it, tak­ing ad­van­tage of a now-closed le­gal loop­hole that al­lowed both buyer and seller to claim tax cred­its.

"Citi's Ger­many unit has never been trader, bro­ker or struc­turer of cum-ex trades," a Citi spokesman in Frank­furt said. He said the bank did act as a set­tle­ment agent for clients' trades, but only sup­plied its in­fra­struc­ture had no knowl­edge of the ac­tual trades be­ing car­ried out.

Ger­man daily Han­dels­blatt cor­rected a March 22 re­port that said the Frank­furt tax of­fice had asked for 706 mil­lion euros ($791.07 mil­lion) in back taxes from Cit­i­group over div­i­dend-strip­ping trans­ac­tions. "This sum is no longer a topic of dis­cus­sion be­tween the bank and the Ger­man tax au­thor­i­ties and no tax or pay­ment de­mand has been made by the au­thor­i­ties," the mag­a­zine said.

A num­ber of large banks have al­ready paid hun­dreds of millions of euros in back taxes and tens of millions to set­tle dis­putes with Ger­man au­thor­i­ties.

Cit­i­group and sev­eral of its sub­sidiaries are on a list of about 130 banks which have al­legedly been in­volved in cum-ex trades. Ger­man fi­nan­cial watch­dog Bafin is sur­vey­ing the coun­try's 1,800 lenders to see if they are at risk from po­ten­tial de­mands for back taxes from "cum-ex" trades. Bafin last month closed the Ger­man op­er­a­tions of Canada's Maple Fi­nan­cial on im­pend­ing fi­nan­cial over-in­debt­ed­ness re­lated to tax eva­sion in­ves­ti­ga­tions.

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