German Finance Minister Cries Foul Over Tax Avoidance Deals

The German government may not be able to recover billions of dollars in lost dividend taxes from complex stock-lending deals that benefited U.S. and other foreign investors


Germany's top finance official criticized controversial stock loans that allow U.S. and other foreign investors to avoid paying about $1 billion a year in dividend taxes in Germany.


"I think we made very clear that we were not happy about these activities," Finance Minister Wolfgang Schäuble said Wednesday. He strongly suggested that banks discontinue the practice: "I am sure that all responsible banks and their boards will deal with this topic."


Schäuble's statement came a day after publication of a joint investigation by ProPublica, the Washington Post and the German news outlets ARD and Handelsblatt about the trades, which are arranged by U.S. and other banks using stocks borrowed from investment managers like Vanguard and BlackRock.


One major German player in the transactions 2014 Commerzbank, Germany's second largest bank 2014 has since said it will discontinue such deals even before a proposed law to end them can be adopted.


But the larger question of whether Germany will get back the billions it lost remains unanswered. Schäuble said Germany cannot claw back taxes that were avoided in legal securities lending. Though Schäuble called the trades "not legitimate," experts differ on whether they are forbidden under current law.


Revelation of the bank's participation in div-arb put Schäuble in an awkward spot. The government owns 15 percent of Commerzbank and has two seats on its board thanks to a 2008 bailout. And while taxpayers lose on the stock deals, they make money for Commerzbank's shareholders.


The controversy centers around a trading strategy called "dividend arbitrage," or "div-arb," in which large foreign investors lend out their holdings of German stocks so they are not on their books at dividend time.


The borrower is a German fund or bank that doesn't have to pay the 15 percent dividend tax that applies to foreign investors. After dividend time, the shares get returned. The tax savings are then split among the investors, banks and other players.


Confidential documents obtained by ProPublica identified Commerzbank as a key "end-user," where borrowed shares can be parked temporarily to avoid withholding taxes. They also named a who's who of global banks that enable the transactions and major investment managers that lend out German stocks.


Commerzbank's share price dropped nearly 10 percent since news of its involvement and a weak earnings report, and German politicians said they were shocked to learn that the bank helped investors avoid taxes.


One member of parliament called Commerzbank "morally bankrupt." Thomas Schäfer, finance minister for Hessen 2014 home to Frankfurt, Germany's financial capital 2014 called div-arb "pure tax trickery on the back of society" and warned that banks who engage in the practice face "loss of credibility and image" that can outweigh any profits gained from such transactions.


Schäuble is the highest-ranking German official to criticize the transactions. His agency has proposed legislation to stop the trades by making them too risky. A parliamentary hearing is set for next week.


At a news conference Wednesday, Schäuble sought to explain why, under current German law, the government may not be able to recover the tax revenue it has lost from the transactions.


"One paragraph in the general tax code says that if you use some tax instruments to avoid tax paying and if there is no economic purpose, then there could be a misuse," Schäuble said. "Excessive use of these instruments is not legitimate."


But Schäubleadded: "As long as these instruments, according to the highest courts, are and were not illegal until today, I cannot reclaim tax money."


Following is some of the other reaction inside Germany:


This article was written by Cezary Podkul, with reporting contributed by Arne Meyer-Fünffinger of Bayerischer Rundfunk in Berlin and staff of the Handelsblatt newspaper. Research and translation contributed by Jennifer Stahl.


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BurnNote: Delete Message Automatically
Many a times, it so happens that you have to communicate something private to a close friend/family member. And you are worried that it may fall into the wrong hands. For example, in an emergency, you need to send your bank 

account number, or your credit card number, to your spouse. You may send it via email, but there is a chance that, after using that information, the recipient does not delete it from the mailbox. Anyone having access to that mailbox can then misuse that information.
BurnNote allows a user to send a message to someone in such a manner that the message will be automatically deleted after a predefined number of seconds, once it has been read. So, if you have set it to 180 seconds, the message will destruct itself 180 seconds after it has been read by the recipient. 
The implementation is simple. Go to or the BurnNote app, and fill up a simple registration form. Now, you can compose a mail to anyone and define, say, 180 seconds after reading it, it should self-destruct. If you want to be doubly sure, you can even create a password for accessing the mail. The site will generate a link and you can then copy-paste that link in your regular email. The recipient just needs to click on that link, enter the password (if any) and read the mail as desired. Once the mail has been read, after 180 seconds, the link will be inactive and no longer accessible to either the sender or the receiver. BurnNote can also be made copy-resistant using the Spotlight display option which limits how much of the message is viewable at once.
In short, BurnNote puts you in total control of your privacy. Maybe the US government should have used it for their diplomatic cables!


To Swear or Not To Swear?
What does one say, as a reaction, to a sudden catastrophe? Or to an unpleasant situation? ‘Oh! S ***’! ‘Bloody Hell’! ‘Damn it’! Some might invoke more colourful words in the local lingo. Does this constitute a criminal liability? Can words import so much attention?
The law prohibits the use of certain derogatory words. The Scheduled castes (SC) must not be referred to by their birth, and punishment is severe. It is so not only in India. To address an American-African a ‘black’, is politically correct. But only a black can call another black, a ‘negro’.
In India, that is Bharat, to use a caste appellation is punishable only when someone from another (‘higher’) caste utters it. Intra-caste references are not justiciable because all of them must flow as gravity ordains it, from a ‘higher’, to a ‘lower’, caste. One question remains. With so many caste classifications, if say, ‘xxx’ is punishable when used by a non-SC person, would the same be the case if ‘xxx’ is said by a member of the SC, but of a slightly higher denomination, to someone lower down the pecking order? The use of expletives is another matter. ‘Bloody’ was considered profane, until someone came up with its etymology. It’s a short form of ‘Bless our Lady’ and ‘Bless the Lord’, they lamented. Right or wrong, it has now found common usage. So, unfortunately, has the ‘f’ word in daily parlance, but which still is, and will remain, verboten. 
When problems arise, real or perceived, on the use of objectionable non-bon-mots, we tap the most human reaction of all. Pass a law. And that is exactly what the American state of Michigan did, in 1897, along with a caveat. Recognising that men being men, and that free speech among friends should be unfettered, swear words were geographically banned. The territorial jurisdiction began within the vicinity of women and children. ‘Earshot’ was the amplitudinal limit. Seventy-five years later, the infamous ‘expletive deleted’ Watergate tapes Nixonised profanity.
Hundred and one years passed. The law remained on the statute books. By then, Timothy Boomer had taken to canoeing. He selected a river, Rifle River. But he selected the wrong state; Michigan. As canoes and kayaks go, overturning is an occupational hazard. And Timothy took a hazard hit. 
OMG. Rifle River hath seen no fury as a canoeist drenched. As water gushed out of his nose and ears, along came a volley of expletives—close to a mother and her two children. Either the family was too near, or the torrent (of words, not of the water) was a few decibels too high. They heard; Timothy was booked. You be the judge. Would you convict Timothy, wet and forlorn? Or let him off?
Guilty as charged, said the jury. Timothy faced 90 days in jail. Luckily, he got off with a small fine and just four days of social service. But the black mark of a conviction remained. He appealed. Judge William Murphy, of Michigan’s Court of Appeals, overturning, stated:
“Allowing a prosecution where one utters ‘insulting’ language could possibly subject a vast percentage of the populace to a misdemeanour conviction. We find it unquestionable that [the law], as drafted, reaches constitutionally protected speech, and it operates to inhibit the exercise of First Amendment rights.”
The American reliance on ‘The First’ seems to know no bounds. Thank God. But what of our unconstitutional enforcement of forced speech? In today’s vitiated atmosphere, not saying something invites the threat of decapitation. Silence is no longer golden. It is, now, a cross too huge to bear. Like so much else, Muteness is banned. Sound must prevail. Sound-bytes, actually. Will each new dispensation introduce a novel jingo-lingo? Why worry? No need for optics to shout. In fact, visual (and mental) incapacity should be a boon. As for Michigan, did it ever enforce the law against any woman for seething within audibility of other women? Gender bias, dammit! Expletive deleted.


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