Meritsoft, a Cognizant company, has developed a new tax module that enables tax operations teams at financial houses to comply with prominent withholding tax legislation, recently illuminated by well-publicised ‘cum-ex’ tax fraud enquiries.

Despite legislation being introduced in 2002 to close a loophole that enabled a number of parties to claim the same dividend tax refund, transactions falling within the scope of the cum-ex tax scheme were carried out by banks, traders, and lawyers that have recently resulted in a series of fraud trials. German equities and some corporate bonds are the main securities affected to date, although US market American Depository Receipts (ADRs) also fall under the regime. There are important implications for hedging activity too, as derivatives used to hedge an equity position will reduce the holder’s overall tax reclaim eligibility.

As market participants face increasing scrutiny of the activities that denied European treasuries an estimated €55 billion in revenues between the years 2008 and 2012 alone, Meritsoft’s new Cum-Ex Manager helps users comply with the requirements of the tax law by:

  1. Tracking the trading of a particular security and any of its underlying derivatives from the safe harbor point – which is 12 months prior to the dividend payment date;
  2. Tracking the trading of a particular security and any of its derivatives during the 45-day window before and after the dividend payment; and
  3. Facilitating the tax reclaim process.

Developed as part of the FINBOS operations automation platform, the Cum-Ex Manager provides full oversight of the relevant trading lifecycle. Stock trading activity is viewable on a First in, First out (FIFO) basis, ensuring that firms are fully aware of their trading behaviors and can remain compliant with the rules when it comes to reclaiming withholding tax.

Daniel Carpenter, Head of Regulation at Meritsoft

“While the legislation has been in place for years there is a renewed impetus from authorities to clamp down on the inappropriate tax reclaims being submitted. Now that reclaims are being audited more rigorously, it is imperative that operations teams ensure that they are complying with the rules and have sufficient transparency to demonstrate this fact.”

The new cum-ex module is part of a centralised Meritsoft platform for tax operations that also supports financial transaction taxes, withholding taxes, capital gains taxes and 871(m) and 305(c) rules.

To discover how Meritsoft’s proven platform and architecture can provide you with a fully scalable solution to all your tax management requirements, please contact us at