Carefully timed deals help big money managers skirt dividend taxes in 20 countries, confidential documents show.
This story was co-published with The Washington Post.
German companies are known for paying some of the heftiest dividends among world stocks, one reason U.S. investment giants such as BlackRock and Vanguard are among the biggest holders of German shares.
But Wall Street has figured out a way to squeeze some extra income from these stocks. And German taxpayers pay for it.
A cache of confidential documents obtained by ProPublica and analyzed in collaboration with The Washington Post, German broadcaster ARD and the Handelsblatt newspaper in Düsseldorf details how Wall Street puts together complex stock-lending deals that drain an estimated $1 billion a year from the German treasury.
Similar deals extend beyond Germany, siphoning revenue from at least 20 other countries across four continents, according to the documents, which show how “dividend-arbitrage” transactions — known in the trade as “div-arb” — are structured and marketed as tax-avoidance vehicles.
The trove of transaction logs, emails, marketing materials, chat messages and other communications among deal participants involves a who’s who of the world’s big banks and institutional investors.
In deals like these, some of America’s largest money managers briefly lend out some of their German holdings each year. Those shares are temporarily held by German investment funds and banks that by law pay no tax on German dividends or can claim refunds for tax withheld. The borrowed shares are returned shortly after the dividend is paid.