Denmark loses £1.4bn tax fraud claim in UK court case

Denmark’s tax authority has lost a £1.4bn fraud case at the High Court in London in one of the highest value civil cases ever heard in the UK.

Skatteforvaltningen, known as Skat, argued huge sums of cash had been falsely claimed in tax rebates – as part of so-called “cum-ex schemes”.

The main named defendant in the case was defunct hedgefund Solo Capital Partners, run by trader Sanjay Shah, who was jailed in a criminal trial in Denmark last year.

Ruling on the case, Mr Justice Andrew Baker said the Danish tax authority had not been misled into making the payments.

The case was deciding on whether Skat was deceived into paying the tax refunds, as it had claimed.

“Greed can be a powerful motive, and I consider there was substantial greed here,” said Mr Justice Baker.

“However, the evidence at trial did not persuade me to accept Skat’s claim, and I do not make the findings it sought.”

The judgement noted that of the 4,170 dividend refund claims between mid-2012 and mid-2015 examined as part of the trial, none were valid claims under Danish tax law – and all of them could have been rejected.

However, Mr Justice Baker said the tax authority’s “controls for assessing and paying dividend tax refund claims were so flimsy as to be almost non-existent”.

He said Skat had “failed to established any of the claims pursued at trial where liability was disputed”.

In a statement, the Danish government said its tax authority “strongly disagrees with the premises of the judgment and is now seeking to appeal it”.

Cum-ex schemes were a method of exploiting weaknesses in tax regimes of different European countries and are believed to have cost European governments billions.

They were carried out with the sole purpose of generating multiple refunds of a tax that had only been paid once.

The schemes would work by taking advantage of the period when a company paid out dividends to shareholders.

Shares would be sold by one investor immediately before the dividends were paid (cum, or with, dividend), and delivered to a buyer afterwards (ex-dividend) – effectively creating confusion over who owned the shares at the moment when the dividend was paid.

It allowed both parties to claim rebates on withholding tax – a levy which had only been paid once, when the dividend was issued.

Solo Capital Partners was founded in 2009 by London-based trader Shah.

It was widely seen as a key player in refining and exploiting the cum-ex trade – with its activities focused primarily on Denmark.

In 2023, he was extradited to Denmark from Dubai to face trial, and in December last year he was convicted, and given the heaviest penalty ever in Denmark for a fraud case.

In Thursday’s judgement, Mr Justice Baker said Shah was “not a trustworthy individual” and his testimony had contained “implausible claims and obvious lies”.

“I do not consider it safe, in general, to treat anything Mr Shah says for himself or about the Danish dividend tax refund factory he created as reliable evidence of fact,” said Mr Justice Baker.

However, the judgement found while this information gave “some indirect support ” to the case put forward by Skat – it did not prove the tax authority’s case.

The 18-month trial was the culmination of an eight-year legal process – with Skat initially being denied the right to pursue its claim in the English courts, before winning an appeal to the Supreme Court. Legal sources suggest the costs could run into hundreds of millions of pounds.

It originally involved more than 100 defendants, including some 40 individuals and a number of corporate entities.

The judge also rejected a claim against Jas Bains, a lawyer who worked at Solo Capital Partners as a senior manager between 2010 and 2013, before joining another firm that was also later implicated in the cum-ex scandal.

Giving evidence in the trial in April 2024, Mr Bains said he later became concerned about the sheer volume of cum-ex trades being carried out, after hearing reports that Solo Capital was engaged in transactions of huge value.

Through an intermediary, he contacted the Danish authorities in 2015 to warn them of what was going on and over the next two years, assisted the Danish police in a subsequent investigation.

Despite his role as a whistleblower, Mr Bains was included in the wide-ranging damages claim from Skat and has spent years fighting legal battles.

Speaking to the BBC after the ruling, the lawyer said: “This unnecessary trial cost me eight years of my life and I’m grateful to the justice system for exonerating me.”