In recent years, Cum-Ex trading has gained notoriety following large scale regulatory, civil and criminal investigations spanning several European countries.

Cum-Ex trading is the description given to a method of rapid trading of securities around the dividend record date, which allows more than one tax rebate to be claimed in respect of the same dividend payment. The value is therefore generated at a cost to the relevant tax authority, which pays out rebates in excess of the tax received.

This trading practice, prevalent in Germany but also other EU countries such as Denmark, Belgium, and France, has been and continues to be the subject of much debate. It has been reported that European tax authorities have lost in excess of €55 billion due to Cum-Ex trading taking place prior to 2012.

In this blog we will consider the background to the Cum-Ex transactions and examine the specific mechanics of a typical Cum-Ex trade.


The lending and borrowing of securities involves four key dates investors need to be aware of in relation to dividend payments.

  • First, the Declaration Date, this is the date on which the board of directors announces the payment of a dividend. On the Declaration Date the company also sets the Record Date.
  • Second, is the Ex-Date or Ex-Dividend Date, this is the first day that a share trades without the dividend entitlement and is typically before the Record Date. The Ex-Date is set based on stock exchange rules.
  • Third, is the Record Date or date of record, this is the date on which an investor must be listed on the Company’s books in order to receive the dividend payment.
  • The final key date is the Payment Date which is the date of which the dividend is paid to shareholders. This is typically seven days after the Record Date.

In certain European countries, including Germany, when a company distributes dividends to shareholders, the tax authorities withhold a 25% withholding tax (WHT) at source to cover any taxes the shareholder may later owe. Depending on a shareholders particular circumstances and pursuant to certain double taxation treaties, in some circumstances shareholders may be able claim back this 25% tax in the form of a reimbursement from the tax authorities.

What does Cum-Ex mean?

The term Cum-Ex comes from the Latin, cum meaning “with” and ex meaning “without”. In this context it refers to shares/securities with and without the dividend attached.


While there are many versions of a Cum-Ex trade, we consider a very basic Cum-Ex trade below. A version of this trade has been adopted in the ESMA Final report published on 24 September 2020 which can be found here on Cum-Ex, Cum-Cum and withholding tax reclaim schemes. Please see below a simplified hypothetical transaction. This example involves three investors:

  • The lender (A)
  • The short seller (B)
  • The buyer (C)
  • The lender or investor A owns shares in a German company (Company X). A owns shares in Company X worth €1 million; each share is worth €1.00 each.  
  • Shortly before the dividend is paid, the short seller (B) short sells 1 million shares in Company X to a buyer (C) “cum dividend”. The shares with the dividend entitlement attached are worth €1.00. As a result of this trade, B receives €1 million from C. Under the terms of the trade, B would be required to settle the transaction two days later.  
  • As investor A was the owner of Company X shares on the Record Date, investor A is the owner on record and is entitled to the dividend payment from Company X. Company X distributes a dividend of €100,000. A receives a dividend of €75,000 from Company X, net of WHT. Depending on the tax jurisdiction and tax treatment, Investor A may be able to claim a refund of WHT for €25,000.  
  • B has received €1 million from C. As B was short-selling the securities, B does not own the securities and now needs to borrow shares in Company X. B borrows 1 million shares in Company X from Investor A on or after the Ex-Date which means the shares are “ex dividend”. As the shares now do not have the dividend entitled they have fallen in price to €0.90 per share, the 1 million Company X shares are now only worth €900,000. The effect of dividend declaration generally means that the stock price of shares will fall on the Ex-Date. As investor B only has to pay investor A €900,000 for the shares in Company X, investor B has a surplus of €100,000 as they received €1,000,000 from investor C.  
  • Investor B delivers the shares to investor C “ex-dividend”; the market value of the shares has now fallen to €900,000. Since the shares had been sold to C “cum-dividend”, Investor B also has to manufacture a dividend payment to C in an equivalent amount to the net dividend. Investor B manufactures the dividend and pays investor C €75,000 from the surplus €100,000. When B makes the dividend payment they do not pay any tax to the German Tax Authority (“GTA”). Following this payment to investor C, investor B now has €25,000 left from the €100,000  
  • Investor C, upon receipt of a dividend compensation payment in an amount equivalent to the net dividend of €75,000 applies for a WHT refund from the GTA in the same way as investor A does. Investor C receives €25,000 from the GTA. The transaction between B and C has now balanced. However, investor B has a surplus €25,000 left from the €100,000. This €25,000 profit is shared between B and C.  
  • At the end of the scheme investor C sells back the shares to investor A.  
  • The net effect of the scheme is that the GTA refunds two amounts of WHT, despite only ever having had one such amount of tax paid to it. B and C receive a profit in an amount equal to the WHT refunded.


Although investigations into certain Cum-Ex activity have been underway for some years, the last few months have seen an increase in law enforcement and regulator activity across Europe as these investigations reach maturity. It seems certain that focus is likely to remain on this complex form of trading for some time to come.