Portigon, the legal successor to the broken-up Landesbank WestLB, loses in court and has to pay for tax liabilities from cum-ex transactions.
(Photo: dpa)
Frankfurt, Dusseldorf The Westdeutsche Landesbank (WestLB) has not existed for ten years. It was crushed after suffering great losses and being rescued by the state. But between its two successor companies, the First Settlement Agency (EAA) and Portigon, a billion-dollar dispute over tax reclaims is raging – from which the EAA has now emerged as the victor. As a result, the savings banks in North Rhine-Westphalia (NRW) do not have to expect any extra charges either.
Portigon has to pay tax debts itself and cannot pass them on to the EAA, the Frankfurt Higher Regional Court ruled (Az. 4 U 282/21) on Wednesday afternoon. It dismissed Portigon’s lawsuit. According to the court, the plaintiffs’ tax liabilities are to be borne by them.
From the point of view of the 4th Civil Senate at the Higher Regional Court (OLG), the contracts between the two WestLB successor companies contain “no express provisions on the transfer of own tax liabilities” from Portigon to EAA. Portigon also failed to inform the EAA about the tax risks resulting from the cum-ex transactions. The judgment is not final.
Portigon had sued the EAA to take over the tax reclaims from illegal cum-ex transactions and was right in autumn 2021 at the Frankfurt Regional Court (Az. 2-27 O 328/20). The EAA appealed. Put simply, cum-ex transactions are about unlawful tax refunds from stock transactions.
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Portigon declined to comment on the verdict. The law firm Linklaters, which represents the EAA in the case, was pleased with the verdict: The Frankfurt Higher Regional Court considered it proven “that the parties never referred to a transfer of the tax burdens from cum-ex transactions fraudulently concealed by Portigon of the former WestLB have agreed”.
The background to the billion-euro dispute is that Portigon has to reckon with enormous additional tax payments due to cum-ex transactions by Düsseldorf-based WestLB. The possible tax reclaims amount to a three-digit million amount. Ultimately, however, it is about one billion euros.
WestLB allegedly evaded 600 million euros in taxes in the course of cum-ex transactions. Portigon has already had to form provisions of this amount. Because some of the years are long ago, there are also enormous interest rates.
Dispute about contracts in the WestLB settlement
During the financial crisis, what was once the largest German state bank speculated, it accumulated high losses and was broken up in 2012 under pressure from the EU competition watchdog. Portigon was essentially founded to shoulder the pension burdens of former WestLB employees.
The EAA is to reduce the securities and loan portfolio of the defunct Landesbank. There was a dispute as to whether, when the EAA was created, it was explicitly or implicitly agreed in the contracts that tax liabilities from the former WestLB would also be assumed by the EAA.
While the first impression suggests that one state bank is blaming the other, a look at the ownership structure shows what is behind the lawsuit. Portigon is owned entirely by the state of North Rhine-Westphalia. The two North Rhine-Westphalian savings bank associations together hold 50 percent of the shares in EAA, with the state holding the other half. NRW and the savings banks there were also the owners of WestLB. The Savings Banks are credit institutions under public law, and the sponsors and thus quasi-owners are the municipalities.
>> Read more here: Damages in the billions: state banks sink into cum-ex affair
When the Handelsblatt reported for the first time in 2015 on a data medium on which WestLB’s cum-ex transactions were documented, those affected denied being involved in the scandal. Six months later, the public prosecutor’s office came to the house.
After another three years of investigations, Portigon announced that it had to set aside large reserves because of WestLB’s cum-ex transactions.
Portigon is suing a broker in the USA
There is a legal dispute not only in Germany, but also in the United States: Portigon has filed a lawsuit against TP Icap there, which the Handelsblatt has received. According to the complaint, the WestLB successor company sees itself deceived by the broker and is now demanding that the damage of one billion euros be paid. Portigon generally does not comment on ongoing proceedings.
TP Icap is an inter-dealer broker headquartered in London. Tullett Preborn acquired parts of competitor Icap in 2016. Today the company therefore trades as TP Icap. Because TP Icap did not want to know at the time of the takeover that there were tax liability risks because of the cum-ex transactions, it is also taking action in London against the seller NEX.
Portigon’s US lawsuit revolves around the question of which party knew that the tax authorities had been deceived with the deals. WestLB had repeatedly stocked up on Icap with large blocks of shares in the transactions. In the lawsuit, Portigon is now accusing TP Icap of having been deceived in the transactions themselves. It was not known that the shares did not belong to the broker, but that he had only borrowed the paper.
As a result, both the actual owner and WestLB, as a short buyer, had the capital gains tax refunded. This double reimbursement characterizes the classic cum-ex deals. TP Icap rejects the claims.
In fact, there are great doubts as to whether Portigon’s version is credible. The previous criminal proceedings have shown that, as a rule, the institutes involved in the deals knew that their profits came from the tax coffers. The former North Rhine-Westphalia Minister of Justice Peter Biesenbach called the business “industrial tax evasion”.
The public prosecutor’s office has long since initiated investigations against former WestLB traders and managers on suspicion of tax evasion. The case was initially with the Düsseldorf public prosecutor’s office, but the Cologne authorities have since taken over the case.
18 people are accused, including ex-board members. The threads of a number of cum-ex procedures come together in Cologne. Around 120 complexes are on the table there, with a total of more than 1,600 suspects.
More: Cum-Ex scandal: Convicted Hanno Berger wants to go to the Federal Court of Justice