Where in the World Is Denmark’s $2B?

Here’s how divident arb &#x2F; cum-ex works. Say dividend is $10. You (or one of your accounts) buys the stock pre-dividend. You are then paid $10. However, the stock ex-dividend immediately falls. The trick is, it does not fall by $10 - it falls by tax-adjusted, market-agreed-upon amount. Say, everyone pays 30% tax - then the stock falls by $7. After that, you sell the stock.<p>Your pnl is simply this: you lost $7 on the stock but received $10 dividend. If you, like everyone else in that market, pay 30% tax on dividend - you are exactly breakeaven like everyone else. No arbitrage. Here for simplicity we assume you can’t tax-deduct loss on your stock position (that does not change anything).<p>However: if you somehow do not have to pay tax on dividend, or pay it at a reduced rate, you feel happy.<p>This could get tremendously complicated with cross-boarder transactions and international tax law. But nevertheless may be entirely legal, although understandably frowned upon. It could also be totally fraudulent depending on the setup. No idea what this guy was doing but the fact that he has not been criminally charged may be a hint that they actually cannot charge him with anything.

An interesting thing that a lot of people will find unacceptable is that a lot of banks have desks that exist explicitly to exploit this type of loophole. It&#x27;s very lucrative. It&#x27;s also pretty technical, you need to know a lot about the laws that apply to each country along with all the mechanisms for getting money from the authorities. Not something your average trader knows. I certainly did not until I made friends with some of these guys.<p>As for this claim that the guy makes, that he&#x27;s just exploited a loophole, none of the guys I know in this niche believe that. There are also plenty of rumours surrounding his character, in the sense of &quot;is he an honest guy&quot;, along with stories about how he might be lacking in the scruples department. None of which is hard evidence, of course.

&gt; he learned about cum-ex trades. The term is Latin for “with-without” and refers to the status of shares before and after a dividend is issued<p>Where did this idea come from? <i>cum</i> is Latin for &quot;with&quot;. <i>ex</i> is Latin for &quot;out of&quot; or &quot;from&quot; (as in &quot;exit&quot;). <i>sine</i> is Latin for &quot;without&quot;.<p>Compare the Spanish for &quot;with&quot; and &quot;without&quot;, <i>con</i> and <i>sin</i>.<p>...and somehow, this article talks constantly about cum-ex trades without ever bothering to explain what they are. <a href="https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Dividend_stripping" rel="nofollow">https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Dividend_stripping</a>

This is an incredible story. In short: Denmark automatically withholds taxes on dividends. If you’re a foreign shareholder, you can apply for a refund on the withholdings. But they weren’t actually checking whether you owned the shares.

That&#x27;s just one issue facing the Danish tax authorities. The last 10 to 15 years have seen the politicians implementing numerous saving plan for SKAT. Among other things implementing new software and firing the people it would be replacing, before the software was even written. The software alone costed 260 million USD, and the project still failed. As an added bonus SKAT had to give up on collecting 300 million USD in old debt.

There should be a &quot;bug bounty&quot; program for taxes. If you identify a loophole or scam which was costing the government $100 million you get $1 million.

This article is one of the weirdest I&#x27;ve ever read as a dane. We have a vat refund system, that paid out 120 billion danish kroner to companies that weren&#x27;t meant to have those 120 billion danish kroner.<p>It was made possible because the audit of every vat refund was just one guy, and that was ridiculous, but those 120 billion still exited our treasury.<p>It&#x27;s kind of easy to prove wrong doing on vat, if your company hasn&#x27;t registered a single transaction, then your company simply isn&#x27;t owed any vat. Yet the article seems to want to make this complicated...<p>Why is that?

SKAT... When paying my taxes in Denmark using a foreign bank I have to manually &quot;enter my CPR number and describe what the payment is for&quot; in the message field.

Reading that article makes me deeply cynical about capitalism in general. I don&#x27;t dislike capitalism, but this news is really gold for people who want to advocate against capitalism. It&#x27;s scary.<p>I might not be very smart, I&#x27;m having a hard time understanding how this scheme was accomplished. What worries me is how invisible this is, and how much harm it does. I really wonder how much fraud of this scale is not being caught, because most people don&#x27;t really understand what is being done, on top of it happening in ways which are hard to grasp.<p>It really reminds me how big multinationals have committed tax avoidance for decades, but the voters cannot see it, don&#x27;t understand how it hurts them, and are never really protesting it.<p>There are laws and a justice system, but to me it&#x27;s really hilarious that those people are getting away with this, and how loopholes are tolerated and not an abuse of the law. I cannot understand how the world can just look away and not try to fix this. I fear that if this keeps happening, it may be a source of instability and would really undermine political stability. How would you make a country work properly is the state budget is shrinking?

Dang: typo. Should be &quot;Where in the World Is Danmark&#x27;s $2B?&quot;