German Chancellor Olaf Scholz is set to testify in front of lawmakers on Friday over his role as Hamburg mayor in tackling a multibillion-euro tax fraud in a case that threatens to tarnish him even as he battles crises on multiple fronts.
In the scheme of "cum-ex" or dividend stripping, banks and investors would swiftly trade shares of companies around their dividend payout day, blurring stock ownership and allowing multiple parties to falsely reclaim tax rebates on dividends.
The loophole, now closed, took on a political dimension in the northern port city of Hamburg due to authorities' sluggishness under the mayorship of Scholz at demanding repayment of millions of euros gained under the scheme by important local bank Warburg.
Warburg, which plays a big role in Germany's second largest city, eventually paid its 50 million euro tax bill after the federal finance ministry intervened.
The case threatens to undermine the chancellor even as he is trying to hold his fractious coalition together in the face of growing public discontent over soaring energy inflation in the wake of Russia's invasion of Ukraine in late February.
"It all stinks to high heaven and simply cannot have happened without political influence," Richard Seelmaecker, representative of the opposition conservatives on the committee, told broadcaster ntv.
Scholz, who has dismissed suggestions of any impropriety in his handling of the affair, is due to face a Hamburg parliamentary committee of inquiry investigating the matter in a hearing on Friday from 1400 CET (1200 GMT).
"This has been an issue for two and a half years now," Scholz recently told reporters. "Countless files have been studied, countless people have been heard. The result is always: There has been no political influence."
But recent headlines that prosecutors probing the scheme in Hamburg discovered 200,000 euros in the safe of a local politician from Scholz's ruling Social Democrats has reignited suspicions of political intervention on the bank's behalf.
Scholz has denied any knowledge of this cash or its origin and said he no longer has contact with the lawmaker involved. The lawmaker did not respond to a request for comment.
The chancellor already faced Hamburg lawmakers last year and acknowledged then having a series of meetings with the then chairman of Warburg but said he couldn't recall details.
"He only admits what can be proven," said Seelmaecker.
One of state prosecutors' recent findings is a discrepancy between the many calendar entries of Hamburg authorities mentioning the Warburg bank and "cum-ex" and the few emails on the topic, Der Spiegel magazine wrote, citing the prosecutors report.
"This suggests a targeted deletion(of emails)," Spiegel cited the report as saying.