Table of Contents
How does a cum-ex trade work?
In cum-ex trades, shares with and without dividend rights were quickly traded between various market participants just before the payout date for the dividend, allowing traders to reclaim double the taxes. According to the report, in some countries, the cum ex deals are not criminal offences.
Why is it called cum-ex?
So-called cum-ex trades were transactions where shares were sold from one investor to another immediately before the payment of a dividend (cum, or with, dividend) but delivered afterwards (ex-dividend). This tactic effectively created confusion over who owned the shares at the moment when the dividend was paid.
Is dividend stripping legal?
Dividend stripping is not exactly illegal. The provisions of income tax on dividend stripping are applicable when an investor, who buys securities within the 3 months prior to the record date and sells such securities, within 3 months after such date in case of shares and within 9 months in case of units.
How does a dividend arbitrage work?
So, in a dividend arbitrage play, a trader buys the dividend-paying stock and put options in an equal amount before the ex-dividend date. Dividend arbitrage is intended to create a risk-free profit by hedging the downside of a dividend-paying stock while waiting for upcoming dividends to be issued.
What is the 45 day rule?
The 45 Day Rule also known as the Holding Period Rule requires resident taxpayers to continuously hold shares “at risk” for at least 45 days (90 days for preference shares, not including the day of acquisition or disposal) in order to be entitled to the Franking Credits as a franking tax offset.
Is bonus stripping legal?
Bonus stripping in the Income-tax act In order to claim a short-term capital loss, the acquired share units must be purchased 3 months prior to the date of bonus issue. The share units must be sold within 9 months, after the date of the bonus issue.
How do you hedge a dividend risk?
Dividend arbitrage is intended to create a risk-free profit by hedging the downside of a dividend-paying stock while waiting for upcoming dividends to be issued. If the stock drops in price by the time the dividend gets paid—and it typically does—the puts that were purchased provide protection.
Can you day trade dividend stocks?
Day traders will use what’s known as the dividend capture strategy, or a variation of it, to make quick profits by holding shares just long enough to capture the dividend the stock pays.
What is Bond washing?
Bond washing is the practice of selling a bond just before it pays a coupon payment and then buying it back once the coupon has been paid. Bond washing previously could result in apparently tax-free capital gains because after the coupon has been paid, the bond will often sell for less.
Why is bonus stripping done?
The concept of Bonus Stripping In bonus stripping, the investors acquire units before the mutual fund company makes any bonus issue. Hence, investors enjoy two-fold benefits. One benefit is the short term capital loss for the sale of original units, which is available for set off against any capital gains.
How much did CUMEX lose in tax fraud?
For the Mexican consortium of universities, see CUMEX. Loss of roughly $63.2 billion. The CumEx-Files is an investigation by a number of European news media outlets into a tax fraud scheme discovered by them in 2017.
How many parties are needed for a successful CUMEX scheme?
Generally speaking, three or more parties are needed for a successful Cumex scheme. A simplified summary example: Investor A owns shares in Company X worth 20 million euros. Investor C sells shares worth 20 million euros to Investor B without owning them himself (short selling).
What happens when a company trades ex-dividend?
On the day the company trades ex-dividend, theoretically the share price drops by the amount of the dividend. This may be done either by an ordinary investor as an investment strategy, or by a company’s owners or associates as a tax avoidance strategy.
What iscum-ex fraud?
This specific alleged crime involves “cum-ex fraud”. If you have no idea what this is, you are not alone. It involves bafflingly complex transactions and jargon.