Germany's 16 regions are in disagreement with each other regarding how to deal with the legacy of so-called cum/cum trades, a practice that allowed foreign investors to avoid paying a German tax on dividends and that was prohibited in 2016, the Financial Times reported Dec. 28.
One group of the country's regional administrations, led by the opposition Social Democrats, is lobbying for a tougher approach against banks involved in such transactions prior to 2016. The group is headed by North Rhine-Westphalia, which is pushing for regions to be able to seek billions of euros in back taxes from the banks, according to the report.
Other regions, including Hesse, that have administrations led by Chancellor Angela Merkel's CDU/CSU coalition want a less aggressive approach, arguing that North Rhine-Westphalia's approach would be self-defeating.
The trades involved a German bank borrowing a foreign investor's shares in a company in the run-up to a dividend payment, allowing the bank to take advantage of a loophole in German law that allows domestic investors to claim a credit on taxes on dividends that foreign investors cannot claim, the FT noted.
In May, Commerzbank AG said it stopped carrying out such trades because they were no longer "socially acceptable."