In its November 2024 decision (I R 3/21), the BFH clarified that the decisive factor under Section 39 AO is whether a party objectively had the legal and factual ability to exercise ownership rights, not whether it intended to do so.

The ruling comes at a time of intensifying enforcement across Europe. German prosecutors continue to expand criminal investigations into cum-cum and cum-ex structures, while tax authorities are under increasing pressure to recover historic withholding tax losses.  

Cum-Cum vs Cum-Ex: An Important Distinction

Cum-ex and cum-cum transactions are often discussed together, but they are legally different. 

Cum-ex schemes involve multiple refund claims on withholding tax that had only been paid once and are now widely treated as fraudulent. By contrast, cum-cum transactions, typically involve a foreign investor temporarily transferring shares to a domestic institution before a dividend payment. The domestic institution can reclaim or credit German withholding tax, with the economic benefit shared between the parties.  

For years, these structures were viewed by many market participants as aggressive tax planning rather than outright fraud, and that legal uncertainty remains central to current disputes.

The BFH’s Key Finding on Economic Ownership 

The BFH confirmed that economic ownership generally passes where the recipient of the shares: 

• bears market risk;  

• can freely dispose of the securities; and  

• only has to return equivalent shares, not the exact same shares.  

Most importantly, the court rejected the idea that subjective intention matters. A borrower does not lose economic ownership simply because it never intended to sell or otherwise use the shares. What matters is whether it objectively could have done so.  

This directly challenges the German Ministry of Finance’s 2021 guidance, which had adopted a narrower interpretation of economic ownership in securities lending transactions.

Why the Decision Matters 

For institutions involved in historic cum-cum arrangements, the ruling may strengthen arguments that economic ownership validly transferred to the domestic institution claiming the withholding tax benefit. 

However, the BFH did not end the analysis there. The case was sent back for consideration under Section 42 AO, Germany’s anti-abuse rule, which means that even if economic ownership transferred successfully, tax authorities may still challenge transactions they view as predominantly tax-driven or lacking genuine commercial purposes.  

In practice, the legal focus now shifts from ownership mechanics to abuse analysis. 

Criminal Enforcement Is Accelerating

The BFH judgment also arrives alongside a significant escalation in German criminal enforcement. 

In December 2024, the Frankfurt Higher Regional Court admitted criminal tax evasion charges against former bank executives linked to cum-cum structures, followed by additional proceedings in March 2025.  

German authorities continue to investigate hundreds of suspected cum-ex and cum-cum cases involving billions of euros in disputed withholding tax claims.  

This creates a two-track risk environment: 

• the BFH ruling may improve taxpayer arguments on economic ownership; but  

• criminal exposure remains possible where prosecutors view the overall structure as abusive or intentionally misleading. 

Practical Implications for Investors and Advisers 

Institutional investors, banks, custodians, and tax advisers with historic German dividend arbitrage exposure should reassess their positions in light of the BFH ruling. 

Key issues include: 

• whether shares were transferred around dividend dates;  

• whether withholding tax refunds or credits were claimed;  

• whether the arrangement had sufficient commercial rationale; and  

• whether criminal limitation periods remain open.  

The BFH has now provided a clearer legal framework for economic ownership, but Section 42 AO abuse analysis remains unresolved in many cases.  

At the same time, prosecutors have indicated that preventing limitation periods from expiring is becoming a priority, increasing pressure on institutions that have not yet assessed potential exposure. 

Conclusion 

The BFH’s November 2024 judgment is likely to become the leading authority on economic ownership in German dividend-related trading structures. 

While the ruling weakens parts of the German tax authorities’ earlier administrative position, it does not reduce overall enforcement pressure. Instead, the focus increasingly shifts toward anti-abuse analysis and criminal enforcement. 

For market participants with historic cum-cum exposure, the message is clear: Germany’s legal framework may now be more defined, but the enforcement environment has become considerably more aggressive.