In a letter dated 17 July 2017 (IV C 1 - S 2252/15/10030 :005), the Federal Ministry of Finance (BMF) commented on the tax treatment of cum/cum transactions. In our Blog from 26 February 2016 we have already explained the effects of cum/cum transactions in contrast to cum/ex transactions. These are transactions in which domestic shares are transferred from the generally foreign owner to a domestic taxpayer before the dividend record date for the purpose of offsetting the withheld capital gains tax.

In its letter, the BMF draws a distinction between cum/cum arrangements, which are intended to avoid a definitive capital gains tax burden, particularly for non-residents, and structured securities lending, in which an "artificial" excess of operating expenses is generated through lending fees. In the case of structured securities lending, these fees are not offset by taxable income due to the exemption for dividends in accordance with Section 8b (1) KStG.

Section 36a of the German Income Tax Act (EStG) applies to investment income received from 1 January 2016, according to which the prerequisite for the crediting of capital gains tax is that the person entitled to the credit bears a minimum risk of a change in value during a holding period of at least 90 days around the dividend record date (see our Message from 22 June 2017).

For the period prior to this, the letter provides information on when an abuse of structuring within the meaning of Section 42 AO exists. An abuse of structuring has the consequence that a desired credit of capital gains tax is not recognised for the tax resident. Such an abuse is deemed to exist if there is no economically reasonable reason for the legal transaction and a tax-induced arrangement is evident overall. In more detail, the letter states the following reasons that speak in favour of the assumption of an abuse of structuring:

  • The total remuneration of the borrower or acquirer is measured against the tax benefit
  • The exercise of voting rights is contractually excluded or restricted for the borrower or acquirer
  • The risk of changes in the value of the shares on the part of the borrower or acquirer is excluded