CumEx: Luxembourg in the crosshairs of Europe's biggest tax scam

The essence of the CumEx scheme is to recover taxes that were never paid. This convoluted but incredibly lucrative scheme has become one of the biggest financial crimes in European history. The total loss from such transactions is estimated at 55 billion euros, of which Germany accounts for at least 10 billion.

Now the investigation is closing in on Luxembourg, whose tax architecture experts believe made such transactions possible.

The CumEx scheme was based on multiple dividend tax refunds by trading shares with a fictitious change of ownership around the dividend payment date. This allowed different parties to claim a refund of tax that was actually withheld only once - or not at all.

In Luxembourg, the investigation has so far been hampered by the secrecy of fiscal information: it is impossible to say with certainty whether CumEx transactions are among the tax refund applications. However, alarming signals are coming in.

According to Finance Minister Gilles Roth, 2,210 applications for withholding tax refunds under the parent-subsidiary regime have been filed in Luxembourg between 2020 and 2024. This regime exempts from taxation dividends paid between related legal entities. Of these, 261 applications totalling €9.4 million have been rejected and seven cases have been taken to court.

Five of the cases reported from abroad contain specific indications of involvement in CumEx-type schemes, with the most recent application dating back to 2024.

In Germany, CumEx has become a full-blown political scandal. Chancellor Olaf Scholz (SPD), who was mayor of Hamburg, was involved in a story with Warburg Bank, one of the key players in the schemes. Warburg had to pay back 47 million euros to the state, but the process was delayed and the politicians' ties to the bank are still questionable.

One of the most persistent critics of the scandal is Fabio De Masi, a former Bundestag MP from the Die Linke party. He repeatedly emphasised that Luxembourg was part of the financial infrastructure that provided the "logistics" of such schemes. According to him, without the participation of countries with flexible tax regimes, the scale of CumEx would not have been possible.

Finance Minister Gilles Roth recognises the importance of the problem and says the tax administration has been significantly strengthened. The aim is to improve controls and identify suspicious transactions more quickly.

However, the line between legitimate tax refunds and CumEx-style abuse remains blurred. The law allows for exceptions, but it is in this grey area that the main frauds take place. The difficulty is that cross-border schemes are easily disguised as legal activities.