Dividend tax arbitrage

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Firms Involved

  • Commerzbank

Year of the event


Description of the case

Commerzbank is the second largest German bank. It has a strong retail unit but is also in asset management. During years, the bank helped foreign investors set up schemes allowing them to avoid dividend taxes. Indeed, the tax rate on dividends is lower for local investors (ie. German investors) than for foreign investors. Commerzbank would then borrow the shares right before the ex-date of the dividends, pay a low tax rate, and then give back the securities & dividend received, taking a small cut on the way[1]. This scheme allegedly allowed institutional investors such as Blackrock or the Norwegian sovereign fund to avoid up to $1tn of taxes. The scheme was denounced as illegal by the German federal government in 2016 as its sole purpose was to avoid taxes, and the transactions had no economic substance. Commerzbank announced it stopped its dividend arbitrage service and was later prosecuted.[2][3]


  • Complexity in regulation always opens gaps and opportunities.
  • Transactions without economic rationale are likely to be deemed illegal at some point.


  1. [https://www.bloomberg.com/view/articles/2016-05-04/dividends-annuities-and-hedge-funds Bloomberg, Matt Levine, Dividends, Annuities and Hedge Funds ]
  2. Propublica, Prosecutor Targets Commerzbank for Deals That Dodge German Taxes
  3. Reuters, Germany attacks 'illegitimate' dividend tax avoidance scheme