The National Financial Prosecutor’s Office (PNF) hit hard on Tuesday. As part of a criminal investigation for giant tax evasion, he raided the premises of five French banking establishments: Société Générale, BNP Paribas, Natixis, HSBC and Exane, a branch of BNP Paribas specializing in financial investments. This operation follows the revelations of the “Cumex Files” affair in 2018 by international media. The PNF opened an investigation for suspicion of aggravated tax evasion or laundering of tax evasion at the end of 2021. The scale of the fraud is estimated at more than 150 billion euros, including 30 billion in France. The targeted financial institutions would have used the CumCum scheme to avoid their customers paying taxes in France.
The system is a winner for all parties except for the taxman
But what is the CumCum technique? This is tax evasion or “a foreign shareholder of a company listed in France temporarily transfers, on the preceding and following days, the securities he holds to a banking establishment” in order to “to evade payment of the withholding tax applied to the payment of dividends” according to the PNF.
The bank may receive in exchange a commission on the dividends returned to the foreign shareholder for having avoided taxation ranging from 15.2% to 30% depending on the country of residence of the owner of the securities. The system is a winner for all parties except for the tax authorities, which do not collect their share. That’s why this technique is called “CumCum” (“cum” means “with” in Latin, implied “win-win” ).
Sentences of up to 7 years in prison and a fine of 3 million euros
From a legal point of view, it’s all regarding interpretation. The law does not prohibit the transfer by foreign investors of securities to French banks. Only the latter must not have the sole motivation of avoiding paying the tax. “Constitute an abuse of rights […] the acts that […] have no other motive than that of evading or mitigating the tax burdens normally borne, is it listed in the General Tax Code.
To leave no room for doubt, the French tax authorities specified the right in a circular published on February 15th. The perpetrators of the offense risk up to 7 years in prison and a fine of 3 million euros.
But the technique of CumCum can be declined in other versions. Shareholders of securities of companies listed in France can go through shell companies to transfer their shares to countries that benefit from tax exemption, for example.
