Dividend arbitrage.
It is such a simple trade:
Company C in Country X pays a dividend of $100 on its stock. Country X requires withholding a 15 percent tax on any dividend paid out of the country. Investor A in Country Y owns Company C stock. If it just got the dividend, it would only get $85. But instead, the day before the dividend, it lends the Company C stock to Bank B in Country X. (Or it sells the Company C stock to Bank B and buys back a swap, or some other more-or-less economically equivalent transaction.) Bank B gets the $100 dividend, without withholding tax. Bank B pays a $100 "substitute dividend" payment to Investor A, which is not subject to withholding tax. (Or maybe it pays $95 and keeps $5 for its troubles.) (Bank B may be taxed on the dividend as income, but it gets to deduct the substitute dividend as an expense, so it pays no net tax on the trade. Or perhaps Bank B is exempt from tax on the dividend for some other reason.) After the dividend, Bank B returns the stock back to Investor A, without ever taking stock-price risk. The end. Everything is just as it was, but Investor A avoids the tax, and Bank B collects a fee.
There is nothing especially subtle about it, and yet it is elegant enough in its way. The trick is that Country X's tax code requires withholding on one transaction (a dividend) and not on an economically identical and trivially similar transaction (a "substitute dividend" on a swap or stock loan).
Countries tend to like their dividend withholding. Gratuitous payments by local companies to foreign investors are pretty much an ideal source of tax revenue; remember, the optimal tax is one on foreigners living abroad. And the dividend-arbitrage trade is reasonably easy to shut down; you just extend the withholding requirement not just to dividends but also to substitute dividends paid by banks. The U.S. did this several years ago, but the trade is still popular in many other parts of the world, including in Germany, where dividends tend to be high and where the tax code is not quite equipped to stop the arbitrage. Here is a ProPublica/Washington Post article about dividend arbitrage in Germany that takes the usual moralizing line:
Wall Street has figured out a way to squeeze some extra income from these stocks. And German taxpayers pay for it.
As a result of the investigation, Germany's finance ministry declared the deals "illegitimate because their sole purpose is to avoid the legal taxation of dividends," and Commerzbank will shut down its dividend-arbitrage business. I won't say it was too beautiful to live. It was just a basic exploit of a basic inconsistency in Germany's tax system. If you tax a dividend to A, but not to B, then eventually they'll figure out a way to send all the dividends to B and split up the savings. Finance is about allocating capital and arbitraging away inefficiencies; the differential tax treatment of dividends to foreign and domestic investors was an inefficiency, so modern global finance arbitraged it away. Of course, to modern global finance, all taxes feel like inefficiency, and it's perfectly reasonable for Germany to put this one back.
Anyway this is not a great pitch:
Another bank prepared an explainer for clients that says, “We’re not going to pretend to be tax experts, but it goes something like this.” The explainer then details how investors can avoid taxes by lending shares over dividend dates.
You are pitching a tax trade! Prefacing your tax advice with a folksy warning that you don't know what you're talking about is not ideal.