Timed Deals Help Big Money Managers Skirt Dividend Taxes In 20 Countries

[Riddick]

German companies are known for paying some of the heftiest dividends among world stocks, one reason U.S. investment giants such as BlackRock and Vanguard are among the biggest holders of German shares.

But Wall Street has figured out a way to squeeze some extra income from these stocks. And German taxpayers pay for it.

Dividend arbitrage, or div-arb as it's known, has been an "open secret on Wall Street for years," but a trove of documents reveals how the trading is being used to skirt taxes in more than 20 countries.

In Germany alone, div-arb deals mean the government collects $1 billion per year less in taxes than it otherwise would.

In Germany, the most prominent participant is Commerzbank, which was bailed out by German taxpayers during the financial crisis and is still 15 percent owned by the government.

After publication of our joint investigation, Commerzbank said it would stop participating in the transactions detailed in this story without waiting for the government to ban them.

In addition, a spokesman for the German finance ministry called the transactions “illegitimate because their sole purpose is to avoid the legal taxation of dividends.” FULL STORY

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