Deutsche Bank’s head of investment banking was sent an email in 2007 which discussed a design flaw in Germany’s tax code that allowed its clients to trick tax authorities into refunding dividend tax that was never paid.
Garth Ritchie, who at the time had a role in the bank’s London-based equities operations, was copied into the email and it was unclear whether he had actually read it, according to a person who has seen the email.
The email, which was first reported by Germany’s public broadcaster ARD and daily Süddeutsche Zeitung, is part of the evidence collected by prosecutors in Cologne, Frankfurt and Munich, who have spent several years probing the scandal.
Two former London-based Deutsche Bank employees who left the lender a decade ago are among those being probed over the so-called cum-ex transactions, which allowed investors to exploit a legal loophole that enabled multiple parties to claim a refund of taxes paid on share dividends.
Mr Ritchie has been the sole head of Deutsche Bank’s struggling investment bank since 2018. The unit has long suffered from falling revenues and high costs. The supervisory board in September extended Mr Ritchie’s contract by five years.
But just a few months later, members of Deutsche Bank’s supervisory board voiced doubts over his future because of the sluggish performance of the investment bank.
Deutsche Bank has stressed that it did not actively participate in the so-called cum-ex deals that between 2001 and 2011 cost the German taxpayer at least €5.7bn in fraudulent tax refunds.
“However, as a big market participant, Deutsche Bank was involved into cum-ex deals of customers,” the bank said in a statement, adding that it was fully co-operating with the authorities investigating the matter.
Mr Ritchie did not immediately answer a request for comment by the Financial Times.
In December, Deutsche Bank paid €4m to settle a cum-ex investigation by the Frankfurt general prosecutor’s office that had looked into the bank’s help to clients in doing controversial tax deals.
In 2007, German policymakers closed a loophole, making such deals impossible for taxpayers based in the country, but those outside Germany remained able for several years to reclaim tax refunds they were not due.
Deutsche Bank’s London-based investment bank acted as a prime broker for clients who were engaged in cum-ex deals, providing them with the liquidity necessary to trade and with shares needed for short sales at the heart of the fraudulent transactions.
A person briefed on the matter told the FT that the total revenue Deutsche Bank generated by providing services to clients engaging in cum-ex deals between 2007 and 2011 amounted to less than €20m.
A cum-ex deal involved a trader borrowing a block of shares to bet against them using a technique called short selling in the run-up to dividend day and then selling them on to another investor.
A loophole in the German tax code meant parties on both sides of the trade could successfully claim a refund of withholding taxes paid on the dividend — even though authorities contend only a single rebate was due.
Analysts expect Deutsche Bank’s investment banking revenues to have fallen close to 7 per cent, while its costs declined only 3 per cent, when it reports full-year results on February 1.
