Rahman Ravelli
Rahman Ravelli Solicitors Logo
Switchboard: +44 (0)203 947 1539

About Us Expertise PEOPLE International Legal Articles News Events Contact Us toggle button for phone toggle button for search

Cum-Ex And Beneficial Ownership Of Shares

Author: Azizur Rahman  20 December 2019

As the Cum-Ex investigation gathers pace in Europe, Rahman Ravelli consider the issue of what constitutes beneficial ownership of shares.

With a number of banks having been raided as part of Europe’s growing Cum-Ex scandal, investigators are focusing on the exploitation of a loophole on dividend payments that enabled a number of parties to claim the same tax refund.

Banks and stockbrokers rapidly traded shares with ("cum") and without ("ex") dividend rights in a way that enabled them to hide the identity of the actual owner - they could agree to sell a company stock before the dividend was paid out but then deliver it after the dividend had been paid. As a result, both parties could claim tax rebates on capital gains tax - a tax that had only been paid once – and rapid trading between various parties could give the appearance of numerous owners, creating large profits.

German authorities believe this has cost that country’s treasury 10 billion euros in lost revenue. But there may be more than 10 other European countries affected; with estimates saying around 55 billion euros may have been lost to those nations’ treasuries.

While investigations into Cum-Ex are still at a relatively early stage, any examination of the beneficial ownership of shares is likely to focus on whether or not beneficial ownership was actually transferred. In the context of Cum-Ex transactions, beneficial ownership of the shares and the rights this carries includes:

  • the right to share in the company's profitability, income, and assets.
  • a degree of control and influence over company management selection.
  • pre-emptive rights to newly issued shares.
  • general meeting voting rights.

The Cologne tax court recently held that under German law, in the case of an over-the-counter short sale, the share purchaser would not become the beneficial owner of the shares to be delivered at a later stage at the settlement of the purchase agreement.

It remains to be seen just how the UK is affected by the developing Cum-Ex investigation. In the UK, the issue of beneficial ownership of shares was addressed in J Sainsbury Plc v O’Connor [1990], in which Millett J said beneficial ownership was “more than equitable ownership. It requires more than the ownership of an empty shell bereft of those rights of beneficial enjoyment which normally attach to equitable ownership.’’

This article was also featured on Lexology.com.

Azizur Rahman C 09369

Azizur Rahman

Senior Partner

+44 (0)203 911 9339 vCard

Download Profile PDF

View Profile

Aziz Rahman is Senior Partner at Rahman Ravelli and its founder. His ability to coordinate national, international and multi-agency defences has led to success in some of the most significant corporate crime cases of this century and top rankings in international legal guides. He is recognised worldwide as one of the most capable legal experts regarding top-level, high-value commercial and financial disputes.

Share this page on