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EU watchdog targets illegitimate double tax reclaims in review

EU watchdog targets illegitimate double tax reclaims in review
FILE PHOTO: U.S. and European Union flags are pictured during the visit of Vice President Mike Pence to the European Commission headquarters in Brussels, Belgium February 20, 2017. REUTERS/Francois Lenoir -
Francois Lenoir(Reuters)
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By Huw Jones

LONDON (Reuters) – The European Union’s securities watchdog said the bloc’s market abuse rules may need tightening to cover trading linked to illegitimate double tax reclaims, currently the subject of Germany’s biggest fraud trial.

The European Securities and Markets Authority (ESMA) said it was reviewing the three-year-old regime, which seeks to stamp out unfair trading practices.

“Ensuring the market abuse framework matches market developments and thus remains effective in detecting and preventing abusive behaviour is paramount to safeguarding investors’ interests and essential to ensure safe and orderly markets,” said Steven Maijoor, chair of ESMA said in a statement on Thursday.

The issue has come under the spotlight in the German “cum/ex” court case regarding a sham trading scheme to make illegitimate double tax reclaims of more than 450 million euros.

ESMA said that dividend arbitrage strategies have existed for many years and can involve the placement of shares in alternative tax jurisdictions around dividend dates, with the aim of minimising the tax on dividends.

The watchdog said it was considering whether the EU’s market abuse rules needed changing to give regulators the power to investigate and sanction “unfair behaviours” such as multiple tax reclaims.

Regulators may need powers to swap information with tax authorities, ESMA said.


ESMA’s public consultation paper also looks at whether spot foreign exchange contracts should come under the scope of EU market abuse rules.

UK, Swiss and U.S. regulators fined banks for trying to rig the $5-trillion-a-day spot FX market in 2014, leading to a new code of conduct.

But ESMA said it might be advisable to wait until the code was embedded more deeply in the market and a review of it next year was completed. The spot FX market might first need to develop features that securities have, such as controls, transparency and reporting obligations.

The consultation ends on Nov. 29 and the watchdog will then send its recommendations to the European Commission, which has power to propose legislative changes that would need approval by the European Parliament and EU states.

(Reporting by Huw Jones; Editing by Hugh Lawson and John Stonestreet)

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