No liability of FMS Wertmanagement for tax debts from cum/ex transactions of the former WestLB
By judgment of December 14, 2022 (Case No.: 4 U 282/21), the Higher Regional Court of Frankfurt am Main delivered a landmark decision on questions of responsibility for tax debts in the context of so-called cum/ex transactions. The proceedings focused on FMS Wertmanagement AöR, commonly referred to as the “bad bank” of the former WestLB, which operates under the Act on the Establishment of Winding-up Institutions after the transfer of assets and liabilities.
The court rejected the liability of FMS Wertmanagement for tax debts arising from cum/ex transactions conducted by WestLB. The decision provides significant legal clarity regarding the handling of legacy debts and tax risks in the regulatory resolution of systemically important credit institutions.
Background: Resolution of WestLB and establishment of FMS Wertmanagement
For years, WestLB served as the central state bank in North Rhine-Westphalia until it needed comprehensive restructuring following the financial market crisis. As part of this restructuring, assets and risks were transferred from WestLB to FMS Wertmanagement under the Act on the Establishment of Winding-up Institutions (AAöG). The latter was tasked with managing and winding down WestLB’s non-strategic assets in a way that minimized losses. Since then, the question of who is liable for tax arrears and especially for additional claims arising from unlawful cum/ex tax refunds after such a spin-off has occupied the courts.
Cum/ex transactions and their tax consequences
Cum/ex transactions are based on arrangements and trading structures that allowed multiple refunds of withholding tax, although the tax was actually paid only once. Their exposure revealed that the state suffered significant tax losses over many years. Numerous credit institutions and investors have since been faced with civil law clawback claims as well as actions by tax authorities. In resolution cases such as WestLB, the question arises whether additional claims can be asserted against the winding-up institution or must continue to be directed against the legacy institution.
The decision of the Higher Regional Court of Frankfurt am Main
The Higher Regional Court of Frankfurt dismissed the claim of a corporation seeking payment of additional tax claims from cum/ex transactions by FMS Wertmanagement. The court emphasized that the application of Section 7 (1) AAöG only provides for the transfer of tax liabilities to the extent that they result from the transferred assets. Tax claims that are only determined afterwards and are not firmly linked to the transferred positions remain, according to the court’s interpretation, with the legacy institution. The claims in question resulted from the conduct and tax declarations of the former WestLB and therefore are not to be considered among the risks transferred to FMS Wertmanagement.
No extension of liability by takeover of business division
The court also examined whether an extension of liability could arise from the takeover of an entire business division—regardless of the specific provisions of the Act on the Establishment of Winding-up Institutions. In this regard as well, the Higher Regional Court found no basis for joint and several liability of FMS Wertmanagement, since this would contradict the statutory liability regime and would moreover affect the interests of the creditors of the winding-up institution and the general public.
Significance of the decision and impact on the financial market
With this decision, the Higher Regional Court of Frankfurt am Main establishes a clear approach for handling additional tax claims in supervisory bank resolutions. For creditors and the treasury, this means that claims based on tax debts arising before the resolution cannot simply be asserted against the acquiring winding-up institution. Rather, questions of liability remain closely tied to the statutory requirements to prevent a subsequent transfer of considerable liability risks onto the shoulders of public safety institutions.
Outlook and ongoing proceedings
The legal examination of cum/ex transactions will continue to engage the financial sector for years to come. Banks and their legal successors are repeatedly confronted with clawback claims, tax assessments, and claims for damages. It remains to be seen whether, and to what extent, the highest courts will provide further clarification. The current judgment of the Higher Regional Court of Frankfurt am Main underscores the strict adherence to statutory transfer mechanisms and limits the liability of winding-up institutions to clearly defined risks.
Source note and presumption of innocence
The decision discussed here is based on the publication by the Higher Regional Court of Frankfurt am Main, Case No.: 4 U 282/21 (available at: urteile.news/OLG-Frankfurt-am-Main4-U-28221Bad-Bank-der-WestLB-haftet-nicht-fuer-Steuerschulden-aus-CumEx-Geschaeften~N32483). Further criminal tax and civil proceedings in connection with cum/ex transactions are, to the knowledge of MTR Legal, in some cases still pending; for persons and institutions involved, the presumption of innocence applies until a final judgment has been reached.
For companies, investors, or high net worth individuals who require support in the context of complex tax or liability issues, the lawyers at MTR Legal are readily available as competent contacts.
