Reclaim of Credited Withholding Tax in the Cum/Ex Complex – Current Decision of the Hamburg Fiscal Court
The Hamburg Fiscal Court (Ref. 6 K 228/20) clarified in its decision of February 2, 2024, that reclaims of credited withholding tax in connection with the so-called Cum/Ex structures are legally permissible. The decision is of considerable practical relevance for taxpayers involved in Cum/Ex transactions and contributes to the further development of case law in the area of withholding tax and its crediting. The following analysis explains the essential aspects of the decision, elaborates on the legal background, and examines the implications for affected market participants.
Background of Cum/Ex Structures
Functionality and Objectives
Cum/Ex transactions were aimed at multiple claims for credit or refund for one and the same withholding tax. By means of rapid trading of shares around the dividend record date, the impression arose that several parties were entitled to claim the same tax. As a result, a tax paid only once was credited or refunded several times, leading to tax being reimbursed or credited even though no corresponding tax payment had actually been made.
Statutory and Tax Framework
The statutory regulations on withholding tax provide for a deduction and crediting possibility for certain dividend payments (§§ 43 et seq. EStG). The ambiguous ownership situations around the dividend record date formed the starting point for these cumulative and ex-dividend transactions. Improved statutory clarifications and adjustments introduced by the legislature from 2012 onwards aimed to eliminate the identified structure. The criminal investigation, as well as the fiscal reclaim of unjustly refunded amounts, continue to occupy the courts to this day.
Decision of the Hamburg Fiscal Court
Facts and Legal Issue
In the present case, a plaintiff had received a credit of withholding tax for 2011 in the context of Cum/Ex transactions, which was subsequently reclaimed by the tax authorities by means of a reclaim notice. The plaintiff argued that the credit had been formally processed correctly and could not subsequently be revoked. In contrast, the tax authorities took the view that double or unjustified tax credits must be unwound.
Court’s Assessment
The Hamburg Fiscal Court found that reclaiming unduly credited withholding tax is permissible. The essential criterion was whether the tax had actually been paid for the relevant dividend payment and whether the beneficiary had a substantive legal right to the credit. In the case of Cum/Ex transactions, due to their structure, there is generally no original entitlement to credit the tax if it was not paid at all or was already credited to another taxpayer.
The court emphasized the fundamental principles of tax law, in particular the prohibition of multiple refunds of unpaid taxes and the necessity of unwinding unauthorized tax credits in the interest of consistent taxation and the integrity of the tax system.
Further Proceedings
The decision is not yet final. An appeal is pending before the Federal Fiscal Court. It remains to be seen how the supreme court will differentiate reclaims in the future and to what extent the established standards will be applicable to similar cases.
Significance and Practical Implications
Precedent for Ongoing and Future Proceedings
The decision sets a precedent for numerous pending cases in connection with Cum/Ex matters. Tax authorities are encouraged by the case law to rigorously reclaim unlawful tax credits where the actual burden of withholding tax is unprovable or unsubstantial.
Implications for Market Participants and Investors
Affected companies, banks, and investors are faced with a further intensification of fiscal reclaim efforts. This may result in considerable tax risks, accounting uncertainties, and an increased need for advice. At the same time, the judicial clarification provides more legal certainty for all parties involved.
International Aspects and EU Law
The issue of Cum/Ex transactions is of not only national but also cross-border relevance. In many EU member states, similar transaction patterns are being examined and addressed for tax purposes. In a cross-country context, different collection and refund mechanisms may result in complex cases of multiple taxation or reclaims.
Outlook
The subject remains dynamic both in terms of taxation and liability law. Ongoing case law continues to specify the handling of fiscal reclaim claims and is expected to provide further clarification regarding the requirements, legal consequences, and statute-of-limitations issues of tax credits in Cum/Ex structures.
Notice on Pending Proceedings and Presumption of Innocence
It should be noted that the criminal and tax law reviews of many Cum/Ex matters are ongoing. The presumption of innocence applies in all pending proceedings. The information presented here is based on the current state of national jurisprudence, taking into account the decision of the Hamburg Fiscal Court (Ref. 6 K 228/20).
Contact for Further Questions
For companies, investment vehicles, and individuals affected by reclaims related to the crediting of withholding tax or those seeking information about cross-border dividend structures, it may be advisable to seek comprehensive legal advice. The Rechtsanwälte at MTR Legal are available for further information and to discuss specific issues.
