Two major financial players in Canada have acknowledged they have made payments to German authorities after a bank they partly owned became entangled in an investigation into alleged tax fraud in Europe.
Both Montreal-based National Bank of Canada and the Ontario Teachers’ Pension Plan said they have been told they are not suspected of any wrongdoing, but both entities also confirmed they have made payments to Germany’s tax authorities as a result of the case.
The payments stem from ownership stakes National and Teachers’ held in Maple Financial Group Inc., the Canadian parent company of a defunct German lender, Frankfurt-based Maple Bank GmbH.
Maple Bank was put out of business by a German financial regulator in 2016 after an investigation was launched in 2015 into what National called “alleged tax irregularities.”
“The Bank understands that the investigation is focusing on selected trading activities by Maple GmbH and some of its former employees, primarily during taxation years 2006 to 2010,” National noted in December in filings for its fiscal year ended Oct. 31. “The German authorities have alleged that these trading activities, often referred to as ‘cum-ex trading,’ violated German tax laws.”
So-called cum-ex trading schemes generally involve a complex series of stock transactions that can lead to multiple investors claiming dividend tax rebates on a single set of shares. They get their name because they centre around the dates at which shares trades with (cum) or without (ex) rights to a dividend payment.
“It’s a bit like parents claiming a child benefit for two — or more — children when there is only one child in the family,” according to Correctiv, a German non-profit newsroom that, along with other media outlets, reported in 2018 that taxpayers across the continent were out more than 55 billion euros because of tax trades.
The discovery of the alleged cum-ex schemes has caused a stir in Europe, and particularly in Germany, which has alleged its treasury was short-changed by more than five billion euros because of transactions involving a number of financial institutions. The country has been working to recoup that cost.
While National said it had not yet been determined if “tax fraud” had been committed by Maple Bank or its employees, it confirmed Maple Bank’s insolvency proceeding had yielded a tax decision from Germany’s finance office.
“Further to discussions between the Bank and the German prosecutors concerning the amounts deemed attributable to the alleged tax fraud, the Bank paid 7.7 million euros to the German tax authorities on November 19, 2019,” National said.
National Bank said it had been cleared by German prosecutors of any wrongdoing.
In an email, a spokesperson for National said they had “nothing specific to add” to disclosures made in their 2019 results.
If any payments are required, they are not expected to be material to the Banks financial position.
National Bank spokesperson
Teachers’ did not specify how much it had paid. A spokesperson for the pension fund told the Financial Post in an email that “immediately upon becoming aware of the allegations against certain employees of Maple Bank, Ontario Teachers’ entered into a dialogue in good faith with the relevant German authorities and the German insolvency administrator of Maple Bank.”
Following a broader investigation, prosecutors in Frankfurt were “entirely satisfied that there is no suspicion of any wrongdoing by Ontario Teachers’ in connection with these matters,” the pension fund’s spokesperson said.
“Furthermore, the German tax authority has accepted a voluntary payment from Ontario Teachers’ representing their calculation of all amounts received by Ontario Teachers’ from the suspicious trading undertaken by certain Maple Bank employees,” they added. “Ontario Teachers’ is pleased to have resolved the matter with the State Prosecutor and tax authorities.”
National and Teachers’ vowed to make any necessary repayments in 2016, when National also wrote off the $164-million carrying value of its 24.9-per-cent equity interest in Maple Financial. National’s spokesperson said Maple Financial had been originally owned by investment dealer First Marathon Securities, which National agreed to buy in 1999 for $712 million.
Teachers’ stake was 28 per cent of Maple Financial, according to a Canadian Press report from 2015. A spokesperson declined to provide further details of Teachers’ investment in the firm.
National Bank also said it has been talking with the bankruptcy and insolvency administrators of Maple entities regarding “potential claims” the administrators may make against the firm’s former shareholders. No such claims exist yet, the bank’s spokesperson told the Post.
“The Bank does not see a legal basis for any such liability but is nevertheless continuing discussions at this time,” National added. “If any payments are required, they are not expected to be material to the Bank’s financial position.”
Maple Financial, meanwhile, filed for bankruptcy in 2016. The same year, Canada’s Office of the Superintendent of Financial Institutions seized control of the assets of the Canadian branch of Maple Bank, which was put into liquidation.
The investigation into Maple Bank is ongoing. On Thursday, Reuters and the Financial Times reported that German police had arrested six former bankers in connection to the case, as well as a former partner at a major law firm.
There is also a criminal trial of two bankers underway in the German city of Bonn in connection with cum-ex dealings.
Financial Post
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