Prosecutors in Cologne, Germany, have been investigating Banco Santander SA for alleged tax fraud involving so-called cum-ex dividend transactions, Reuters reported.

In a letter sent to the Spanish bank's lawyers in June, the prosecutors said they suspect the lender of having "planned and executed trades" that made possible "severe tax evasion" between 2007 and 2011, according to the Oct. 18 report. The bank and U.K. unit Abbey National Treasury Services PLC allegedly carried out the transactions on behalf of several U.S. pension funds and client Macquarie Group Ltd. to purportedly help them make illegal tax rebates, the newswire added.

Under the so-called cum-ex trading practice, a bank, on a temporary basis, takes over shares that are owned by foreign investors right before a dividend is paid on them to claim tax breaks, which are given only to Germany-based shareholders. Germany has been probing deals that used this dividend-stripping technique to avoid taxes since 2013. Prosecutors are also looking at Macquarie and Deutsche Bank AG as part of a wider investigation into the matter.

A spokesman for Santander said the lender is conducting its own internal probe and is "fully cooperating" with German authorities on the matter, adding that the investigation involved three former employees, Reuters wrote.

"To date we have not identified any evidence that the activities under investigation involved senior management or that any of Santander's or its subsidiaries' governing bodies were aware of these activities," the spokesman reportedly added.