Cologne The Munich I public prosecutor’s office is making serious allegations against a few dozen consultants and 44 high-net-worth taxpayers. They are said to have evaded hundreds of millions of euros in taxes through novel tax tricks.
In its search warrant of September 15, 2021, the Munich public prosecutor wrote of “acts of particularly serious tax evasion”. The accused had “contrary to their duty to provide incorrect or incomplete information in order to conceal the existence of tax evasion”. Most of the suspects are or have been successful entrepreneurs. It is a shock for them to be suspected of serious tax evasion.
Not only are taxpayers targeted by public prosecutors, but also finance and consulting firms. In particular, the company Co-Invest from Planegg near Munich is accused of having devised and sold a tax evasion model that is illegal from the point of view of the criminal prosecutors. When asked, Co-Invest did not comment on the allegations. Employees of a tax consultancy also belong to this group of suspects.
What is the investigation about? By means of a complicated design, wealthy people are said to have reduced their tax burden by many millions of euros. In this way, according to the search warrant, they were able to generate losses totaling more than one billion euros, which in fact did not occur.
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From a tax point of view, it was supposedly possible to offset these “losses” with other income. Because the top tax rate was generally used, the tax savings in the investigation complex totaled up to 500 million euros. On average, the accused customers were able to save around ten million euros – some more, some less. According to Handelsblatt information, it is also to be determined in Baden-Württemberg and Hesse.
The names of some customers are known to the Handelsblatt. Most of them had to fear immense tax burdens because of high profits from a company sale, like a successful founder from the Saarland. The design of Co-Invest allowed him and other investors to drastically reduce the tax burden.
Tricky construct
Specifically, according to the findings of the public prosecutor’s office, the model worked like this: The customers founded two companies. They each acquired two opposing certificates. One bet on rising prices (bull), one on falling prices (bear). The results of the two certificates could be offset against each other. The deals neutralized each other.
The highlight: The company with the loss certificate could be sold to the customer’s company and merged with it. The defendants later offset the minus of the certificates resulting from the sale of the loss certificates after the merger with accruing profits – with maximum tax effect.
The question now arises as to whether this arrangement was unlawful and possibly even punishable. The lawyers of the accused vehemently deny this. “It is a completely normal structure that is covered by the conversion tax law,” says the defense attorney for one of the accused who helped create the structure. The legislature has clearly regulated there that this type of loss offsetting is permitted.
In addition, says the lawyer, everything has been made transparent to the tax authorities, there can be no talk of concealment. “It is incomprehensible that criminal proceedings have now been initiated here,” he says.
Defense attorney Richard Beyer, who represents two suspicious clients, goes even further. He calls the investigators’ measure “ignorant in terms of taxation and excessively excessive”. Beyer was successful in another criminal tax procedure, which was also about tax structuring, known as “Goldfinger”. This was also a savings model for the rich. However, a large-scale investigation ultimately had to be discontinued without a sound. The defendants are demanding compensation from the state today.
No parallels to Cum-Ex
Comparisons with the cum-ex scandal are also making the rounds – from Beyer’s point of view, they are absurd. The term describes the biggest tax scandal in recent years. It’s about billions in damages caused by a refund of unpaid capital gains taxes. “It’s not at all comparable,” says Beyer.
The current investigation complex is basically about an “ingenious model” to optimize taxes. “That is the right of every taxpayer.” A tax officer also said that the comparison with Cum-Ex was completely inappropriate. “In this case the law was clear, it was clear. With the model now being discussed, the law was not good. “
In mid-2021, the legislature changed the conversion law and thus prevented the bull-bear strategy. The defense attorneys see their arguments strengthened. It is of course the right of politics to take countermeasures here. However, the reform also makes it clear that the offsetting of losses was previously legal. But it is not acceptable that the legislature wants to change the regulations retrospectively.
It remains uncertain whether the public prosecutor’s office can prevail with their point of view. It will probably take many months to evaluate the documents that have been seized and to conclude the investigation.
Each individual case may have to be assessed differently. There are a few questions that investigators will be looking for answers to: What did each individual suspect know about the structure? How did he implement it? And what did he declare and disclose in his tax return? It is still difficult to predict how many of the accused customers and initiators will end up facing charges.
More: Why in the cum-ex scandal the wave of indictments is rolling in now