Ontario Teachers’ Pension Plan hit by alleged tax scandal at bank it partially owns

The C$154.5bn (€99bn) Ontario Teachers Pension Plan (OTPP), a signatory to the Principles for Responsible Investment (PRI), has been hit by an alleged tax scandal at one of its investments, namely an investment bank called Maple. OTPP owns 28% of Maple, which has been active in the German market since 1994. In 2008, Maple’s German unit made headlines when it helped Porsche in its takeover bid of Volkswagen. The bid failed, however, leading to a reverse takeover of Porsche by VW. Then last Sunday (February 7), German financial regulator BaFin said it was shutting down Maple’s business in Germany with immediate effect. According to the regulator, a reserve the bank had built to pay taxes would have otherwise prompted insolvency. BaFin had no further comment on why Maple’s German unit needed the reserve. But the unit said in a statement that the reserve was needed in connection with “cum-ex deals” it had offered between 2006 and 2010. Also known as “dividend stripping,” the deals enabled investors to boost returns by exploiting a German tax loophole. After the loophole was closed in 2012, investors suffered huge losses and German authorities began investigating banks that offered the deals on suspicion of tax evasion. Apart from Maple, banks that offered these deals included the forerunner to J. Safra Sarasin and Deutsche Bank.Last September, Maple’s Frankfurt office was searched by authorities looking for evidence of tax evasion in connection with the deals. According to German press reports, up to €450m in taxes owed may not have been paid.
Commenting on BaFin’s shutdown, OTPP told Responsible Investor that it was made aware of Maple’s involvement with cum-ex deals in Germany last fall. It said: “Immediately upon becoming aware of the allegations against employees of Maple Bank last fall, OTPP entered into a dialogue with the relevant (German) authorities and gave assurances that if such allegations prove to be valid, OTPP would return to the appropriate party any portion of dividends that were reasonably attributable to those proceeds.”
Canada’s National Bank, which owns a 24.9% stake in Maple, announced soon after the BaFin shutdown that it was writing down its investment in the bank by C$165m. Like OTPP, it too has pledged to return any dubious dividends stemming from the cum-ex deals. OTPP declined, however, to comment on what Maple’s German troubles specifically meant for its investment, saying only that it was “assessing the situation.”