May 3, 2018 / 10:22 AM / 5 months ago

German lender Warburg's profit drops on tax scandal provisions

FRANKFURT, May 3 (Reuters) - German lender M.M. Warburg’s pretax profit fell more than 40 percent last year as it set aside 44.5 million euros ($53 million) to cover potential costs related to its alleged involvement in Germany’s highest profile tax evasion scandal.

Pretax earnings fell to 17.4 million euros in 2017 from 29.7 million a year earlier, Warburg said on Thursday.

German prosecutors and tax authorities are investigating 417 suspected cases of so-called dividend stripping in Germany that resulted in 5.3 billion euros of unpaid taxes.

Dividend stripping, also known as “cum-ex” transactions, involved buying a stock just before losing rights to a dividend, then selling it, taking advantage of a now-closed legal loophole that allowed both buyer and seller to claim tax credits.

Investigations into the use of such schemes by a number of banks in Germany have been going on for several years.

Warburg said that from 2007 to 2011 it performed proprietary share trades, around the time the loophole existed.

However, it added: “Senior management is convinced that its tax treatment of the transactions complies with all legal requirements.”

The public prosecutor in Cologne has been investigating senior managers and employees at the bank since 2016, following initials suspicion of tax evasion.

In 2017, the tax authorities revoked the 2010 tax offset notice for Warburg. The bank has appealed this decree.

As the possibility of related claims being brought against Warburg cannot be ruled out, the bank had set aside an amount of money that covers in full the tax and interest receivables for 2010 and 2011, Warburg said.

$1 = 0.8340 euros Reporting by Arno Schuetze; Editing by Mark Potter

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