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Withholding-tax non-compliance: the case of cum-ex stock-market transactions

Author

Listed:
  • Thiess Buettner

    (FAU (Friedrich-Alexander-Universität Erlangen-Nürnberg)
    CESifo)

  • Carolin Holzmann

    (FAU (Friedrich-Alexander-Universität Erlangen-Nürnberg))

  • Felix Kreidl

    (FAU (Friedrich-Alexander-Universität Erlangen-Nürnberg))

  • Hendrik Scholz

    (FAU (Friedrich-Alexander-Universität Erlangen-Nürnberg))

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 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 are only profitable for both buyer and seller in the presence of collusive tax fraud. Our empirical analysis of market data for publicly traded German stocks from 2009 to 2015 confirms that transaction numbers of stocks suitable for cum-ex trades show the expected increase shortly before ex-dividend dates in the period before the tax refunding was reformed. In line with the collusion hypothesis, effects on stock-market prices are not found.

Suggested Citation

  • Thiess Buettner & Carolin Holzmann & Felix Kreidl & Hendrik Scholz, 2020. "Withholding-tax non-compliance: the case of cum-ex stock-market transactions," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(6), pages 1425-1452, December.
    • Handle: RePEc:kap:itaxpf:v:27:y:2020:i:6:d:10.1007_s10797-020-09602-9
    DOI: 10.1007/s10797-020-09602-9
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Felix Kreidl & Hendrik Scholz, 2021. "Exploiting the dividend month premium: evidence from Germany," Journal of Asset Management, Palgrave Macmillan, vol. 22(4), pages 253-266, July.
    2. Felix Kreidl, 2020. "Stock-Market Behavior on Ex-Dates: New Insights from German Stocks with Tax-Free Dividend," IJFS, MDPI, vol. 8(3), pages 1-21, September.
    3. Komath, Muhammed Aslam Chelery & Doğan, Murat & Sayılır, Özlem, 2023. "Impact of corporate governance and related controversies on the market value of banks," Research in International Business and Finance, Elsevier, vol. 65(C).
    4. Cole, Rebel & Johan, Sofia & Schweizer, Denis, 2021. "Corporate failures: Declines, collapses, and scandals," Journal of Corporate Finance, Elsevier, vol. 67(C).
    5. Moritz Wagner & Xiaopeng Wei, 2020. "Cum-Ex Trading – The Biggest Fraud in History?," Working Papers in Economics 20/19, University of Canterbury, Department of Economics and Finance.
    6. Gomber, Peter & Sagade, Satchit & Theissen, Erik & Weber, Moritz Christian & Westheide, Christian, 2023. "Spoilt for choice: Determinants of market shares in fragmented equity markets," Journal of Financial Markets, Elsevier, vol. 64(C).

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    More about this item

    Keywords

    Tax compliance; Tax evasion; Withholding taxes; Collusion; Tax fraud; Tax refunding; Cum-ex trades; Ex-dividend date; Dividend taxes; Capital gains taxes;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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