Banking on Failure

Cum-Ex and Why and How Banks Game the System
Oxford University Press
  • erschienen am 1. September 2020
  • |
  • 368 Seiten
E-Book | ePUB mit Adobe-DRM | Systemvoraussetzungen
978-0-19-260347-0 (ISBN)
Banks seem all too often involved in cases of misconduct, particularly involving the exploitation of tax systems. Banking on Failure explains why and how banks "game the system", accounting for these misconduct cases and analysing the wider implications for financial markets and tax systems. Banking on Failure: Cum-Ex and Why and How Banks Game the System explains why banks design and use structured products to exploit tax systems. It describes one of the biggest and most complex cases - the "cum-ex" scandal - in which hundreds of banks and funds from across the globe participated in the raid on the public exchequers of a number of countries, with losses in the tens of billions of euros. The book then draws on the significance of this case study, and what this tells us about modern banks and their interactions with tax systems. Banking on Failure demonstrates why the exploitation of tax systems by banks is an inevitable feature of the financial markets landscape, and suggests possible responses.
  • Englisch
  • Oxford
  • |
  • Großbritannien
  • 1,89 MB
978-0-19-260347-0 (9780192603470)
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Richard Collier is currently a Senior Tax Advisor at the OECD. He was previously an Associate Fellow at the Said Business School, University of Oxford and a Tax Partner with PwC, where he was the global leader of the firm's banking and capital markets tax practice. Richard has written many articles and recently co-authored (with Joe Andrus) a book, Transfer Pricing and the Arm's Length Principle after BEPS.
  • Cover
  • Banking on Failure: Cum-Ex and Why and How Banks Game the System
  • Copyright
  • Dedication
  • Acknowledgements
  • Contents
  • List of Figures
  • Introduction
  • What This Book Is About
  • Why I Wrote This Book
  • How This Book Is Organized
  • Complexity and Cum-Ex
  • Part I: The Cum-Ex Trade
  • Chapter 1: Cum-Ex in Concept
  • Introduction
  • The Dividend Arbitrage Market
  • Withholding Tax and Tax Credits
  • Introduction to the Cum-Ex Trade
  • Cum-Dividend and Ex-Dividend
  • The Settlement Time Lag
  • The Base Template of Cum-Ex
  • Fundamental Dividend Rules
  • Dividend Adjustment Mechanism
  • Intended Operation of the Dividend Adjustment Mechanism
  • Short Selling
  • Unintended Operation of the Dividend Adjustment Mechanism
  • The Consequences
  • Chapter 2: The Emergence of Cum-Ex
  • Introduction
  • The German Equities Market
  • The Market Infrastructure
  • The Tax Treatment of a Dividend Paid by a German Company
  • (1) Withholding Tax Levied on Payment of a Dividend
  • (2) Taxation of the Recipient
  • (i) Recipients in Germany
  • Companies (Banks and Financial Traders)
  • Funds
  • (ii) Overseas Recipients
  • (3) The Value of German Withholding Tax
  • Introduction to Cum-Ex in the German Market
  • Intended Operation of the Clearstream System
  • The Short Sale Situation-Unintended Operation of the System
  • Position under German Tax Law
  • (i) In Relation to the Buyer
  • (ii) In Relation to the Seller
  • (iii) In Relation to the Lender
  • The Cum-Ex Trade Created
  • Chapter 3: The Evolution of Cum-Ex
  • Introduction
  • Mechanisms to Exploit Cum-Ex
  • Constraints on the Expansion of the Cum-Ex Trade
  • Constraint 1: Finding Buyers and the Problem of Trade Size
  • Constraint 2: Market Risk and the Execution of Trades
  • Constraint 3: Stock Borrowing Issues
  • Constraint 4: Credit Limits
  • Constraint 5: The Demand for Collateral
  • Constraint 6: Dealing with Operational Risk
  • Dealing with the Constraints and Limitations
  • Overcoming the Market Constraints
  • Risk Neutralization-Executing the Transactions
  • Obscuring the Identity of the Parties: The Role of Inter-Dealer Brokers
  • Overcoming Collateral Constraints
  • Dealing with Operational Risk
  • Refining the Cum-Ex Trade
  • Multiplying the Cum-Ex Trade
  • Expanding Participation in the Cum-Ex Trade
  • 1. The Involvement of Overseas Sellers and Buyers and Industrialization of Cum-Ex
  • 2. The Role of Funds
  • 3. Spin-Offs
  • 4. Securing the Supply of Stock Lenders
  • Improvements to the Optics and Efficiency of the Cum-Ex Trade
  • 1. The Use of On-Exchange Instruments
  • 2. The Use of Physically Settled Derivatives
  • Multiplying the Profitability of the Cum-Ex Trade
  • 1. Looping
  • 2. Alternative to Borrowing
  • 3. Alternative Recycling Arrangements
  • 4. Optimizing the Non-Refundable Credit
  • Culmination of Efforts to Improve Profitability and Efficiency of Cum-Ex
  • Structure of the Cum-Ex Trade in Practice
  • Sidestepping Attempts to Close the Cum-Ex Trade
  • 2007-Imposition of Withholding Tax on the Dividend Compensation Payment
  • 2009-BMF Cum-Ex Circular of 5 May 2009
  • Chapter 4: The Closure of Cum-Ex and the Aftermath
  • Introduction
  • The Period Leading up to the Closure of Cum-Ex
  • The 2012 Action to Close Cum-Ex
  • Legal Reassessment of Cum-Ex Structures
  • Ongoing German Tax Authority Challenges and Impacts
  • Estimates of Financial Damage Caused by Cum-Ex
  • Fallout from Cum-Ex
  • Regulatory and Tax Authorities
  • Role of Academics
  • Investors Suing for Lack of Promised Returns
  • Directors and Officers Insurance Issues
  • The German Parliamentary Enquiry
  • Cum-Cum Trades
  • Impacts in Other Countries
  • Countering Cum-Ex in Austria
  • Shift of Trading Activity to Denmark
  • Expected Future Developments
  • Part II: Policy Issues
  • Chapter 5: Assessing the Cum-Ex Trade
  • Introduction
  • Nature of the Response to Cum-Ex
  • What is Problematic in the Response to Cum-Ex?
  • The Nature of Misconduct
  • Why Banks and Why Tax?
  • Chapter 6: Banks and Misconduct
  • Introduction-Why Banks?
  • The Incidence of Misconduct in the Banking Sector
  • Wells Fargo
  • The Mortgage Frauds of the Global Financial Crisis
  • Transformation of the Banking Business Model
  • Shifts in the Financial Sector Environment
  • Impact on the Banking Sector Business Model
  • Weaknesses in the Control and Governance of Banks
  • Impact on Facilitation of Cum-Ex and Similar Schemes
  • Assembling the Elements of the Cum-Ex Trade
  • The New Products or Approvals Process
  • The Legal Opinions
  • Implementation of Cum-Ex Trades
  • External Controls
  • Summary
  • Misconduct in the Banking Sector in Comparison with Other Sectors
  • Dieselgate-The Facts
  • Comparability of Dieselgate to Cum-Ex
  • Relevant Differences
  • Knowledge of the Misconduct
  • Modus Operandi of the Misconduct
  • The Abstract Nature of Banking Business
  • Wider Implications
  • Malleability of the Banking Product
  • Ability to Trade and Re-Trade the Claim
  • Impact of Network Effects
  • Ability to Modify the System
  • Regulatory Response and Resolution
  • Conclusion
  • Chapter 7: Banks and Tax Systems
  • Introduction-Why Tax?
  • Banks and Tax Systems
  • The Features of Tax Systems-Introduction
  • Substantive Rules of a Tax System that Facilitate their Own Exploitation
  • Tax Differences
  • The Tax Treatment of Derivatives and Other Financial Instruments
  • Challenges for Tax Systems
  • Response of Governments
  • Consequences
  • Tax Administration Issues
  • The Consequences of Inadequate Administration of Tax Systems
  • Chapter 8: Conclusions
  • Introduction
  • Lessons
  • Particularities of the Landscape Relating to Banking Business and the Tax Rules for Financial Markets and Products
  • The nature of banking business
  • The nature of the banking 'product'
  • The privileged position of banks and bankers
  • The Tax Rules for Financial Markets and Products
  • Systemic Complexity and Its Consequences
  • The Failure of Governance and Control
  • (i) Failure of Internal Governance and Control
  • (ii) Failure of External Regulators
  • (iii) Failure of Market Mechanisms
  • The Inevitability of Misconduct
  • Possible Responses
  • Introduction
  • (i) The Governance and Control of Banks
  • (ii) Tax Systems
  • The Last Word
  • Appendix: German Institutions, Legislation, and Official Sources
  • Institutions
  • Legislation
  • Official Sources
  • Bibliography
  • Index of Names
  • Subject Index

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