Tax Heist using American Depositary Receipts

Abstract

European countries lost around 60 billion dollars from cum-ex deals, in which investors claim tax refunds for taxes on dividends that were never paid. Using data on US stocks and American Depositary Receipts (ADRs) from 1999 to 2007, we document abnormally large trading volumes around ex-dividend dates, especially on ADRs and from trades with special settlement conditions. Using trades from institutions we document an even larger increase, especially on ADRs and from day trading. The average institution sells ADRs before ex-dates and buys afterwards. These findings are more consistent with dividend avoidance and cum-ex trading than with dividend capture trading.

Keywords: tax fraud, cum-ex, dividend, ADR

JEL Classification: G14, G23