HSBC to Settle French “Cum-Cum” Tax Investigation with $300m Payment
HSBC, one of the world’s largest banking and financial services organisations, is in the final stages of settling a French criminal investigation into its alleged involvement in the “Cum-Cum” tax scheme. The settlement is reported to be around $300m, according to sources cited by Bloomberg.
Understanding the “Cum-Cum” Tax Scheme
The “Cum-Cum” tax scheme involves trades that are allegedly structured to facilitate tax avoidance on dividend payments. In such a scheme, shares are temporarily transferred to a local, tax-exempt entity to evade taxes.
The Settlement with Parquet National Financier (PNF)
HSBC’s settlement is with France’s specialist financial prosecutor, the Parquet National Financier (PNF). The settlement is expected to resolve both the criminal case and a related civil tax claim made by French authorities. The settlement amount aligns with HSBC’s provision for the French probe, as disclosed in its filing in October this year.
The settlement is planned to be presented for judicial review in Paris in the coming weeks. This move follows a similar agreement reached by Crédit Agricole’s investment banking division in September this year, where they agreed to pay about €134m ($156m) in fines and back taxes for their role in Cum-Cum transactions.
Implications for Other Banks
This settlement is expected to increase scrutiny on other banks, including BNP Paribas and its unit Exane, Société Générale, and Natixis. These banks were subject to large-scale PNF raids in 2023. French authorities estimate that Cum-Cum trades involving banks in France may have resulted in around €4.5bn in lost tax revenue, and are seeking to recover these funds.
As part of this effort, PNF has required payment of outstanding Cum-Cum tax liabilities as a condition for resolving related criminal cases. Some banks continue to claim that dividend arbitrage, sometimes called Cum-Cum trades, “doesn’t exist,” a PNF prosecutor was quoted saying in the Bloomberg report.
HSBC’s Future in France
In May this year, Reuters reported that HSBC was planning to reduce its workforce in France by 348 positions, representing approximately 10% of its total staff in the country.
HSBC’s settlement with PNF represents a significant step in addressing the financial institution’s alleged involvement in the Cum-Cum tax scheme. It also sends a clear message to other financial entities about the importance of adhering to tax laws and the potential consequences of non-compliance.
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