Dutch authorities have imposed a substantial €101 million (US$117 million) fine against Morgan Stanley for engaging in dividend tax evasion schemes over a five-year period. The penalty targets two of the bank's entities in London and Amsterdam for deliberately filing incorrect tax returns.
The Cum-Cum Trading Scheme Explained
According to the Dutch public prosecution service, Morgan Stanley executed what are known as Cum-Cum trades between 2007 and 2012. These complex financial arrangements allowed foreign stock owners to avoid withholding taxes by temporarily lending securities to tax-exempt entities during dividend periods.
The prosecution revealed that Morgan Stanley established a special Dutch company that strategically acquired shares only around dividend dates. This entity held stocks briefly to collect dividend payments totaling €830 million during these short-term ownership periods.
Substantial Tax Offsets and Additional Payments
Through this carefully designed structure, the bank enabled parties who weren't legally entitled to dividend tax benefits to wrongfully claim them. Morgan Stanley offset €124 million in dividend taxes across five corporate income tax returns filed between 2009 and 2013.
The €101 million fine represents an additional penalty beyond the tax amounts Morgan Stanley already repaid to Dutch authorities at the end of 2024. Under Dutch tax law, only ultimate beneficiaries of dividends qualify for tax offset rights, which prosecutors say Morgan Stanley deliberately circumvented.
Broader European Crackdown on Tax Schemes
This case forms part of a wider European campaign against Cum-Cum trading practices that several countries now consider illegal. Prosecutors across the continent have intensified their focus on these transactions that enabled banks to secure hundreds of millions in dividend payments.
In France, authorities have launched criminal investigations into multiple financial institutions including BNP Paribas SA, HSBC Holdings PLC, Societe Generale SA, and Natixis SA. French tax officials are separately seeking to recover at least €4.5 billion in lost revenue and have expanded their audits to include Wall Street banks such as Goldman Sachs Group Inc. and Bank of America Corp.
While banks face increasing scrutiny, foreign institutional investors including asset managers and hedge funds involved in these transactions have largely avoided prosecution so far.
Morgan Stanley expressed relief at resolving what it termed a "historical matter" related to corporate tax returns filed over twelve years ago. A bank spokesperson stated they were "pleased to have resolved this historical matter" despite previously rejecting the allegations.
