Denmark’s tax authority has suffered a significant defeat in a London High Court case, losing a £1.4 billion claim related to alleged tax fraud. The case centered on "cum-ex schemes" where vast sums were purportedly claimed in fraudulent tax rebates. The court ruled that the Danish tax authority was not misled into making the payments, marking a major setback for the Scandinavian nation’s efforts to recover the funds.
Key Takeaways
- Denmark’s tax authority (Skat) lost a £1.4bn fraud claim in the UK High Court.
- The case involved allegations of fraudulent tax rebates through "cum-ex schemes".
- The court found Skat was not misled into making the payments.
- The Danish government intends to appeal the ruling.
The Cum-Ex Scheme Explained
Cum-ex schemes were a sophisticated method of exploiting tax loopholes across European countries, costing governments billions. These schemes aimed to generate multiple tax refunds on a single tax payment. They typically involved complex share trading around dividend payment dates, creating confusion over ownership and allowing multiple parties to claim tax rebates on withholding tax that had only been paid once.
Court’s Decision and Reasoning
Mr Justice Andrew Baker presided over the case, which focused on whether Skat had been deceived into issuing the tax refunds. He stated that while "substantial greed" was evident, the evidence presented did not persuade him to accept Skat’s claim. The judge noted that none of the 4,170 dividend refund claims examined between mid-2012 and mid-2015 were valid under Danish tax law and could have been rejected. However, he also highlighted that the tax authority’s internal controls for assessing and paying these claims were "flimsy as to be almost non-existent."
Sanjay Shah and Solo Capital Partners
The main defendant in the civil case was the defunct hedge fund Solo Capital Partners, founded by trader Sanjay Shah. Shah was previously jailed in Denmark last year for his role in the fraud. Mr Justice Baker described Shah as "not a trustworthy individual," whose testimony contained "implausible claims and obvious lies." Despite this, the judge found that Shah’s information, while indirectly supporting Skat’s case, did not definitively prove their claims.
Legal Battle and Appeal
The 18-month trial was the culmination of an eight-year legal process. Skat initially faced hurdles in pursuing its claim in English courts but eventually won an appeal to the Supreme Court. The legal costs are estimated to be in the hundreds of millions of pounds. The Danish government has expressed strong disagreement with the judgment and is seeking to appeal.
Whistleblower Exonerated
The ruling also saw a claim rejected against Jas Bains, a lawyer who previously worked at Solo Capital Partners. Bains had become concerned about the scale of cum-ex trades and acted as a whistleblower, contacting Danish authorities in 2015 and assisting in their investigation. Despite his cooperation, he was included in Skat’s damages claim. Speaking after the ruling, Bains stated, "This unnecessary trial cost me eight years of my life and I’m grateful to the justice system for exonerating me."
