EU ministers back changes to withholding tax rules exploited in trading fraud

Michael McGrath says Ireland would support plans to reform tax regimes following ‘cum-ex’ fraud revelations

Finance ministers backed plans to bring withholding tax regimes in the European Union closer together, following a previous scandal where cross-border differences were exploited in a huge financial fraud.

The Ecofin meeting of EU ministers in Brussels on Tuesday discussed reforms of withholding tax systems, which would come in to force by the end of the decade.

Loopholes and mismatches in tax regimes were taken advantage of by traders and funds in a fraudulent scheme that was estimated to have cost European tax authorities billions of euro over two decades. The scheme, known as cum-ex, saw a network of traders, hedge funds, asset managers and banks claiming multiple refunds on dividend withholding tax that was only paid once, or not at all, through a complex series of trades.

Cum-ex worked by buying and selling huge volumes of shares in a co-ordinated circuit, at key times around the date companies paid out dividends. This resulted in confusion over who was entitled to a refund on dividend withholding tax, allowing it to be claimed multiple times.


Documents previously reported by The Irish Times revealed a number of Irish financial institutions, including a former Bank of Ireland subsidiary and the Dublin offices of two international banks, Investec and BNP Paribas, were used by those carrying out the trades.

The European Commission, the arm of the EU that introduces legislation, proposed changes to withholding tax systems last June, referencing previous instances of tax abuse such as the cum-ex scandal.

Speaking on Tuesday, Minister for Finance Michael McGrath said Ireland was supportive of the reforms. “It will lead to greater harmonisation in terms of the treatment of withholding taxes across member states in the European Union, particularly when it comes to refunds,” he said.

“It would result in the improvement of the administration and streamlining of the withholding tax regime across member states and I think that would be a good thing for businesses and tax authorities,” he said.

If the proposal is approved by the EU, Ireland would have until the end of the decade to introduce the changes, he said. Mr McGrath said the changes would “take account” of previous exploitation of withholding tax rules seen in the cum-ex scheme.

Separately, new figures show the vast majority of businesses that warehoused tax debt during the Covid-19 pandemic have engaged with Revenue to start repayments.

Some €3.2 billion of tax debt owed to Revenue was put on ice as a way of supporting businesses during the pandemic. Of that figure, less than €200 million is owed by businesses who have yet to contact Revenue to set up repayment plans, which would be subject to zero per cent interest rates.

“I would urge the remaining businesses, and there are about 11,700 businesses who have yet to fully engage, to do so immediately,” Mr McGrath said. The bulk of that cohort is about 800 businesses which each owe more than €50,000 in tax debt that had been temporarily shelved.

A further €120 million has been written off by Revenue as uncollectible because businesses fell into insolvency or went bankrupt.

“It was always expected that there would be some proportion of the overall amount that would not be collectible but, in the context of €3.2 billion of tax debt warehoused in very dark times during Covid-19, I think that is a relatively modest overall proportion,” Mr McGrath said. “I think the fear was that much more would end up ultimately not being collected than has been,” he said.

There was a “final opportunity” for businesses to avail of repayment schemes with zero per cent interest rates, he said. If they did not do so, Revenue “will go about their work in the normal way, with the normal interest rates applying”, to collect the previously warehoused debt, he said.

Jack Power

Jack Power

Jack Power is acting Europe Correspondent of The Irish Times