D&O risks increase as tax investigations accelerate: CumEx, CumCum and further tax investigations on the horizon

The legal consequences of CumEx transactions have been discussed for several years in Germany. The corresponding investigations of the public prosecutor have also been ongoing for several years.

Last week German journalists (Cum-Ex- und Cum-Cum-Geschäfte: 150 Milliarden Euro Schaden | tagesschau.de) published a new estimate of the tax losses caused by CumEx and CumCum transactions. In total, a tax loss of EUR 150 billion is said to have been incurred worldwide. In addition to the USA and Germany, at least 10 other European countries are said to be affected by the transactions. The tax loss for Germany is estimated at EUR 35.9 billion.

The investigations of the public prosecutors regarding the CumEx transactions are in full swing. Most recently, the German Federal Court Justice confirmed criminal convictions with regard to CumEx transactions by judgement of 28 July 2021 (Der Bundesgerichtshof - Presse : Pressemitteilungen aus dem Jahr 2021 - Bundesgerichtshof bestätigt Urteil im bundesweit ersten Cum-Ex-Strafverfahren). The investigations regarding the CumCum transactions are still at the beginning. It is anticipated that almost all banks in Germany have carried out CumCum transactions and some are still doing so.

The German newspaper Handelsblatt (Cramer & Cie: Privatbank wegen Steuersparmodell im Visier der Justiz (handelsblatt.com)) reported last week on investigations of the public prosecutor into another tax scheme. In this case, the parties involved are accused of having avoided taxes by purchasing certificates and using a gap in the German Law regulating the transformation of companies. The presumed tax losses are said to exceed EUR 500 million. The public prosecutor is also investigating against the involved advisors. It seems likely that this tax sheme - like CumEx and CumCum - will also end up as claims with D&O and PI insurers.