Withholding-Tax Non-Compliance: The Case of Cum-Ex Stock-Market Transactions

39 Pages Posted: 29 Apr 2017 Last revised: 23 Feb 2019

See all articles by Thiess Buettner

Thiess Buettner

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg

Carolin Holzmann

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg - Institute of Economics

Felix Kreidl

Friedrich-Alexander-Universität Erlangen-Nürnberg

Hendrik Scholz

Friedrich-Alexander-Universität Erlangen-Nürnberg

Date Written: February 22, 2019

Abstract

This paper explores withholding tax non-compliance in the context of dividend taxation. It focuses on a specific type of stock-market transactions around ex-dividend dates, so-called “cum-ex” trades, which have caused considerable revenue losses due to illegitimate tax refunds in Germany and other countries. We use a stylized model of the stock-market equilibrium to analyze the incentives of traders on the German stock market and find that cum-ex trades differ from tax arbitrage exploiting imperfections in the administration of the withholding tax: Cum-ex trades are only profitable for both buyer and seller in the presence of collusive tax fraud. Our analysis of market data for publicly traded German stocks from 2009 to 2015 confirms the theoretical predictions. We find an increase in transaction numbers shortly before ex-dividend dates due to cum-ex trading. In line with the collusion hypothesis, effects on stock-market prices are not found.

Keywords: Tax compliance; Tax evasion; Withholding taxes; Collusion; Tax fraud; Tax refunding; Cum-ex trades; Ex-dividend dates; Dividend taxes; Capital gains taxes

JEL Classification: H26, G12

Suggested Citation

Buettner, Thiess and Holzmann, Carolin and Kreidl, Felix and Scholz, Hendrik, Withholding-Tax Non-Compliance: The Case of Cum-Ex Stock-Market Transactions (February 22, 2019). Available at SSRN: https://ssrn.com/abstract=2960015 or http://dx.doi.org/10.2139/ssrn.2960015

Thiess Buettner

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg ( email )

Lange Gasse 20
Nürnberg, Bavaria 90403
Germany

Carolin Holzmann

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg - Institute of Economics ( email )

Lange Gasse 20
Nuremberg, 90403
Germany

Felix Kreidl

Friedrich-Alexander-Universität Erlangen-Nürnberg ( email )

Erlangen-Nürnberg
Lange Gasse 20,
Nürnberg
Germany

Hendrik Scholz (Contact Author)

Friedrich-Alexander-Universität Erlangen-Nürnberg ( email )

Lange Gasse 20
Lange Gasse 20,
Nürnberg, 90403
Germany

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