Barclays PLC (NYSE:BCS) (LON:BARC) is under investigation by Germany’s tax authorities over the use of ‘dividend stripping’ strategy for alleged tax avoidance.
According to German daily Sueddeutsche Zeitung, Barclays PLC (NYSE:BCS) (LON:BARC) avoided taxes up to €280 million ($367 million/£238 million) per year for 10 years, until 2012 by adopting ‘dividend stripping’ strategy.
The ‘dividend stripping’ strategy involves purchase and naked short-selling of certain shares before and after the dividend payout dates.
The LF Brook Absolute Return Fund lost -2.52% in the second quarter of 2021, compared to a positive performance of 7.59% for its benchmark, the MSCI Daily TR Net World Index. Year-to-date the fund has returned 4.6% compared to 11.9% for its benchmark. Q2 2021 hedge fund letters, conferences and more According to a copy Read More
According to the Germany daily, the strategy has also been used by other banks.
Dividend Stripping Was Lawful
Dividend stripping strategy had been lawful in Germany before the country outlawed the trading strategy in 2012. Currently, banks operating in Germany are subject to investigations linked to the tactic.
According to the Germany daily Sueddeutsche Zeitung, Barclays PLC (NYSE:BCS) (LON:BARC) used a trading platform it operated in Luxembourg to obtain more tax credits than the amount it actually paid in these transactions.
Barclays PLC (NYSE:BCS) (LON:BARC) reportedly ceased using the strategy before Germany changed its rules.
Italian bank UniCredit’s German unit HVB was reportedly expecting up to €200 million in fines from a tax evasion probe relating to share deals.
Barclays PLC said it had complied with “all applicable laws and do not accept any suggestion of misconduct.” It added that it had an “open and constructive approach to engagement with the relevant tax authorities”.
Barclays PLC’ chief executive Antony Jenkins, who took charge of the bank last summer, has pledged to clean up the group’s aggressive reputation for exploiting loopholes in regulations and tax rules.
Barclays Mapped Out Lucrative Tax Loopholes
The Germany daily Sueddeutsche Zeitung further reported that German authorities obtained internal bank documents dated 2007-2010 in which Barclays PLC (NYSE:BCS) (LON:BARC) mapped out lucrative tax loopholes related to naked-short selling transactions before and after the dividend payout dates of stocks.
Berlin’s ministry of finance got the documents from the UK tax authorities, and in a twelve-page letter dated 8 May to chief German financial authorities, it said it suspects tax evasion in the deals. The tax authorities are now probing the case to find out whether resorting to such loopholes amounts to tax evasion.
UK’s banking regulator Prudential Regulatory Authority has recently identified capital shortfall for large British banks, including Barclays PLC (NYSE:BCS) (LON:BARC).
Nomura, in its recent research report observes that Barclays PLC (NYSE:BCS) (LON:BARC) will have to meet the leverage ratio floors consistent with Basel III requirements. The analysts feel Barclays’ capital requirement is the most significant surprise and might push the banks such as Barclays PLC (NYSE:BCS) (LON:BARC) to adopt aggressive techniques to close the gaps.