A prime example of tax arbitrage is described in the paper Cross-Border Investing with Tax Arbitrage: The Case of German Dividend Tax Credits by Robert L. McDonald (excerpt below). In this case, dividend income can be used to gain tax credits and as a result, the next day dividend drop exceeds the dividend value.
German dividends typically carry a tax credit which makes the dividend
worth 42.86% more to a taxable German shareholder than to a tax-exempt
or foreign shareholder. This results in a penalty for foreign
investors who buy and hold German dividend-paying stocks. I
document that, as a result of the credit, the ex-day drop exceeds the
dividend by more than one-half of the tax credit, and show that
futures and option prices embed more than one-half of the tax
credit. The existence of the credit creates opportunities for
cross-border tax arbitrage—in which foreign holders of German
stock transfer the dividend to German shareholders—and implies that
it is tax efficient for foreign investors to hold derivatives rather
than investing directly in German stocks.
Another arbitrage strategy used by non-financial firms that does not involve cross border transactions is described in the paper How Prevalent is Tax Arbitrage? Evidence from the Market for Municipal Bonds, by M. Erickson et. al.:
[Non-financial firms] hold municipal bonds tax-free
while simultaneously borrowing and deducting the interest expenses
from their taxable income.