Thiess Buettner, Felix Kreidl, 14 May 2020

Investors have increasingly used the instrument of withholding taxes to evade dividend taxation, employing ‘cum-ex’ transactions around ex-dividend dates. Using German stock trading data, this column provides evidence for these types of transactions, showing that there is a substantial increase in the number of stocks traded immediately before the ex-dividend date, with much stronger increases in ‘over-the-counter’ transactions, where trades are particularly easy to arrange.  Given the evidence, withholding-tax non-compliance in the form of cum-ex transactions should not be regarded as some type of financial market arbitrage exploiting a tax loophole but a form of deliberate tax fraud.

Banu Demir, Beata Javorcik, 17 September 2018

Smuggling, along with other forms of border tax evasion, is a substantial problem around the world. This column uses Benford’s Law, which suggests that the leading digits in various types of numerical data are not uniformly distributed, to identify suspicious import flows. Results using Turkish data suggest that deviations from Benford’s Law are consistent with higher rates of tax evasion. The approach could be employed by authorities to identify shipments that merit greater scrutiny. 

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