Credit Agricole SA reached a settlement with French authorities to avoid being dragged into a criminal probe over the emerging “Cum-Cum” tax scandal that’s embroiled some of its biggest rivals, according to people familiar with the matter.
(Bloomberg) — Credit Agricole SA reached a settlement with French authorities to avoid being dragged into a criminal probe over the emerging “Cum-Cum” tax scandal that’s embroiled some of its biggest rivals, according to people familiar with the matter.
The Paris-based lender has decided to collaborate with France’s fiscal authorities in order to resolve the claims related to the controversial dividend arbitrage strategy and avoid raids on its premises, according to the people, who spoke on condition of anonymity.
The bank paid about €35 million ($38.4 million) in back taxes and fines, an amount that may swell as authorities are still investigating some of the lender’s trades, one of the people said.
In a surprise move, Paris prosecutors swooped on the offices of BNP Paribas SA, its unit Exane, Societe Generale SA, Natixis SA and HSBC Holdings Plc as part of a probe into the so-called Cum-Cum trades, under which shareholders transferred stock for a short period to investors based abroad to avoid paying tax on dividends. Aside from the criminal case, banks face combined back taxes and fines of more than €1 billion.
Read more: The ‘Cum-Ex’ and ‘Cum-Cum’ Tax Dodges Haunting Banks: QuickTake
Representatives for Credit Agricole, the Paris prosecutor’s office and the French tax office all declined to comment.
Following the raids, the French banking lobby Federation Bancaire Francaise (FBF) filed a lawsuit last month at the nation’ highest administrative court, requesting tax authorities to clarify which dividend arbitrage strategies require the payment of taxes, Bloomberg News reported on March 30. FBF has argued that local fiscal authorities didn’t provide clear guidance in an advance tax ruling – a written interpretation of the law – published in February.
In Cum-Cum trades, investors who received shares from original holders typically held them during the period when dividends were paid out and either weren’t taxed or taxes were refunded. They then returned the securities and the amount saved was split between the parties.
Under another scheme, known as Cum-Ex, multiple people — including short sellers and actual holders — claimed ownership of the same stock, giving more than one investor the right to a refund of taxes withheld from dividends.
Cum-Cum was less profitable but far more widespread, especially in interbanking trading, as the legal risks were deemed to be much lower.
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