Insights
Expert Witness Opinion: New Legal and Regulatory Responses to Deter Dividend Arbitrage in Germany, France and the Netherlands
(5 Minute Read)
28/04/25
Objectivus Expert Witness Services
In recent years, dividend arbitrage strategies, particularly those known as “Cum-Cum” transactions, have come under increased scrutiny across Europe. These arrangements typically involve non-resident investors temporarily transferring shares prior to ex-dividend date to legal entities with access to tax treaties, allowing them to benefit from lower withholding tax obligations and subsequently reclaim the dividend tax withheld at source by way of granting tax credits or repayments. Tax authorities in several jurisdictions have moved decisively to clamp down on such practices, deploying a combination of criminal prosecution, statutory reform, and purposive judicial interpretation. Although no laws have been changed, guidance on how trading needs to be executed to qualify for the tax benefits has been improved.
This article examines the evolving regulatory and legal landscape in Germany, France, and the Netherlands, highlighting how each jurisdiction is using different, albeit converging, tools to deter dividend arbitrage. While the legal mechanisms vary, the overarching objective remains consistent: to deny tax benefits to schemes that lack economic substance and are structured primarily to take advantage of various tax treaties.
Germany: From Cum-Ex to Cum-Cum – A New Wave of Criminal Prosecutions
Germany, the epicentre of the notorious Cum-Ex scandal, has seen dozens of convictions and significant tax recovery efforts in recent years. Whilst that chapter is still ongoing, the focus of the German tax authorities and prosecutors has now shifted to include Cum-Cum transactions. In March 2025, the Frankfurt Higher Regional Court (Oberlandesgericht Frankfurt am Main) ruled that public prosecutors could proceed with charges against former executives of Deutsche Pfandbriefbank for tax evasion in connection with Cum-Cum transactions.
These schemes involved non-resident investors transferring shares shortly before a dividend date to German-resident entities, typically banks, could claim a refund or credit for German withholding tax. The shares were returned post-dividend, but the tax advantage was retained. This structure, long considered a grey area, is now officially viewed as abusive by the German authorities. A circular issued on 9 July 2021 by the German Federal Ministry of Finance indicated that Cum-Cum deals would henceforth be deemed tax abuse.
While no final criminal judgments on Cum-Cum have yet been rendered, the Frankfurt court’s decision to allow charges marks a turning point. Financial experts estimate the Cumulative tax losses from these transactions to be as high as €28.5 billion, potentially surpassing Cum-Ex losses.
In response, new task forces and investigatory units have been established at the state and federal level to target foreign investors and financial intermediaries. Financial institutions are now expected to prepare for potential dawn raids, reassess past trades, conduct internal investigations, and consider voluntary disclosures under Germany’s self-reporting provisions.
To underline the determination of the German authorities to potentially recoup billions of invalid WHT reclaims, a dedicated judicial facility was completed in 2024 in Siegburg, near Bonn, to accommodate the upcoming extensive legal proceedings related to the Cum-Ex and Cum-Cum tax fraud cases, which have implicated numerous financial institutions and individuals across Europe.
The majority of cases will be brought based upon trading activities that test the German 10-year absolute limitation rule for legal claims to be pursued. Hemmung der Verjährung (Hemmung) are used under certain conditions to suspend that limitation period in the case of, for example, ongoing settlement negotiations or parallel/pending litigation. While the limitation is suspended, the 10-year clock is effectively stopped, and we are aware that a large number of Hemmung remain active as German authorities assess the extent to which it is going to pursue their claims.
France: Codifying Substance Over Form
France has opted for a comprehensive legislative response, culminating in reforms under the Finance Act for 2025, supported by an interpretative opinion issued by the Conseil d’État on 30 January 2025. These measures directly address both internal and external Cum-Cum schemes, expanding the scope of withholding tax to ensure alignment with the economic substance of transactions.
The amended Article 119 bis of the French General Tax Code (CGI) now explicitly requires that a dividend recipient must be the “beneficial owner” to benefit from withholding tax exemptions under bilateral treaties. The notion of beneficial ownership, until now largely interpretative, has been codified to support the denial of treaty benefits where an intermediary or conduit is used to gain an unjustified advantage.
In the context of Article 119 bis CGI, the beneficial owner is the entity that:
a) Receives the dividend income; and
b) Has the right to use and enjoy the income unconstrained by a contractual or legal obligation to pass it on to another person.
Complementing this, the newly strengthened Article 119 bis A introduces a wide-reaching anti-abuse mechanism. It reclassifies certain temporary share transfers, repo agreements, and financial derivative instruments, including total return swaps (TRS) and contracts for difference (CFDs), as equivalent to dividend distributions. This ensures that the economic value of a dividend is taxed, regardless of the legal form of the transaction.
The Conseil d’État’s guidance clarifies the concept of a “value transfer,” which now encompasses indirect and synthetic mechanisms whereby the economic benefit of dividends is appropriated by non-residents without triggering formal dividend payments.
The legislation also includes a provisional withholding tax regime for payments made to residents of countries with which France has double tax treaties where withholding tax can be reclaimed. In such cases, the non-resident recipient must prove both beneficial ownership and that the transaction had a legitimate commercial rationale beyond obtaining a tax benefit.
While France’s framework significantly strengthens anti-abuse protections, it also raises a potential technical challenge: the risk of over-taxation in relation to synthetic exposures. The provision extends withholding tax obligations not only to direct dividend distributions but also to financial instruments and arrangements that economically replicate such dividends. For example, a total return swap might entitle a non-resident to receive a cash flow equivalent to a dividend, even though no shares are held and no dividend is formally paid.
Theoretically the total tax collected could therefore exceed the tax due on the actual dividend paid by the French company. This over-taxation risk calls for further clarification from the French tax authorities, potentially through mechanisms such as tax credits, netting arrangements, or exemptions for market-neutral transactions.
The Netherlands: A Judicial Embrace of Purpose and Policy
The Netherlands, long viewed as a jurisdiction with relatively moderate enforcement on dividend arbitrage, has witnessed a marked judicial shift. The Amsterdam Court of Appeal, in a judgment dated 20 March 2025, rejected claims for dividend withholding tax credits by Dutch-resident companies involved in structured arbitrage trades.
In one of the cases, the central question was whether a Dutch entity (D) within a multinational banking group (P) could be treated as the beneficial owner of dividends on Dutch shares. Although the D was attributed the dividend payment within the group, it was found that the economic benefit remained with an external market counterparty, who had engaged in a coordinated exchange for physical (EFP) transaction with P. The court concluded that the arrangement violated the spirit of Article 25(2) of the Dutch Corporate Income Tax Act and denied the credit on the basis that the Dutch entity was not, in fact, the beneficial owner.
On this occasion, in a marked shift, the court took a purposive approach by asserting that transactions structured solely to obtain tax benefits should not enjoy legal protection, even if technically compliant. The terms within the EFP transaction, (where futures pricing indicated 88–92% of the dividend value), were considered strong evidence of pre-agreed WHT sharing arrangement.
Another significant development came in a Dutch Supreme Court ruling on 19 January 2024. The case involved X BV, a Dutch entity within an international banking group, which had lent shares to its UK parent and received them back shortly before the dividend record date. The key issue was whether X BV could be considered the legal, and thereby beneficial, owner of the shares at the critical time.
The Supreme Court found that the Court of Appeal had previously erred by not applying French law to determine whether legal title to the shares had been transferred, as the securities account was maintained with a French custodian. The Court also clarified that, under Dutch law, a taxpayer is presumed to be the beneficial owner if it has legal ownership and does not act as an agent, unless the specific anti-dividend stripping rules apply.
These rulings reveal a judiciary increasingly willing to examine financial arrangements through the lens of economic substance, anti-abuse purpose, and the fraus legis doctrine (an underlying intent to defeat the purpose or spirit of the law), even where the domestic legal framework lacks precise statutory definitions.
European Convergence of Policy, Divergence of Tools
Although Germany, France, and the Netherlands employ different mechanisms, criminal prosecution, legislative overhaul, and purposive judicial interpretation respectively, they are united by a shared policy imperative: aligning taxation with economic substance. Whether through Section 370 of the German Fiscal Code, Article 119 bis A of the French CGI, or Article 25(2) of the Dutch Corporate Income Tax Act, each jurisdiction is closing the door on dividend arbitrage strategies that rely on technical compliance but lack genuine financial reality.
Financial institutions and multinational investors should heed the clear message: dividend arbitrage is increasingly viewed not as creative tax planning, but as a high-risk activity inviting enforcement. Structured products and synthetic trades that replicate dividend entitlements are no longer shielded by legal form.
While further clarification will be required, particularly in France, to address the potential for over-taxation of derivative positions, the direction of travel is unmistakable. In a regulatory environment that prizes transparency, substance, and intent, only those dividend-related trades with legitimate economic rationale will survive scrutiny.
Objectivus Opinion
The inclusion of Cum-Cum dividend arbitrage in the category of abusive tax evasion is hugely significant in the context of future litigation. Alongside its sibling, Cum-Ex dividend arbitrage, these activities were prevalent in a banking industry, primarily in Europe, that exploited contemporaneous tax loopholes for decades.
The evolution of the clarification of regulations as to what is and isn’t a valid tax reclaim are certainly welcome, although it seems unprecedented that the clarification of those regulations are then applied retrospectively and may lead to criminal prosecution. This is akin to locking the stable door after the horse has bolted.
Whilst it is understandable that national treasuries are looking to recoup the supposed billions in (now deemed) illegal tax reclaims, it begs the question as to whether Cum-Ex and Cum-Cum will be the tip of the iceberg when it comes to reclassifying the legality of any form of tax structuring carried out by investment banks, hedge funds or indeed corporate entities.
This announcement will concern a significant number of market participants, both corporate and individual, who may have been involved in dividend arbitrage, which they considered their ‘normal course of business’ during the relevant period from say 2005-2015. Within the large investment banks, these tax strategies would have been endorsed at the time by compliance, legal departments, senior management and no doubt board members, making one wonder as to how so many qualified professionals could have interpreted the regulations incorrectly?
This will no doubt continue to be a major source of litigation, and the upcoming judgment of Justice Andrew Baker, who has presided over the Danish dividend tax-reclaim trial at the High Court in London, will surely carry weight as to how other jurisdictions pursue their own claims. In our opinion, at the heart of the matter is the question of what was the state of mind of the banks and individuals conducting these tax-driven trading strategies at the time (during the relevant period). That is exactly what Judge Andrew Baker must rule upon.
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