Denmark loses lawsuit over Cum-Ex tax dividend scandal

Danish tax authorities lost a London suit against dozens of hedge funds and traders who used complex tax trades to swindle it out of around 12 billion kroner ($1.9 billion).

The decision is a blow to the efforts of the Danish tax agency, known as Skat, to recoup money it said it lost from firms including Solo Capital Partners — a hedge fund that specialized in the controversial tax trades. Its founder Sanjay Shah is currently serving a 12-year prison sentence in Denmark. Other civil suits in different jurisdictions have found in Skat’s favor. 

“Skat failed to establish any of the claims it pursued at trial, where liability was disputed,” Judge Andrew Baker said in Thursday’s ruling. Its controls to stop incorrect payouts on tax rebates  “were so flimsy” that they were close to nonexistent, he said.

The transactions, known as Cum-Ex trades, were a strategy in which a global network of bankers, lawyers and agents exploited loopholes on dividend tax payout laws across Europe to reap rebates. Cum-Ex and similar strategies are the subject of numerous criminal probes in France and Germany. Shah has consistently maintained his innocence, arguing they were exploiting a legal loophole in tax law.

“The court does not accept claims made by Sanjay Shah and some others that they had a reasonable belief that their cum-ex trading models generated valid tax refund,” Baker said. “But that does not prove the deceit alleged by Skat.” 

Skat has filed lawsuits against about 500 companies and individuals in the U.S., U.K., Dubai, Denmark, the Netherlands, Malaysia, and Canada, seeking to recover losses in relation to the Cum-Ex tax case. The Danish state said it lost a total of 12.7 billion kroner in the period 2012 to mid-2015 through allegedly wrongful dividend tax refund applications.

“It is a surprising verdict that we strongly disagree with,” Kim Tolstrup, head of the Danish Tax Agency, said in a statement. “That’s why we’re now also seeking to have it appealed. We want to take this case as far as possible to get the money from the suspected dividend tax fraud back to the Danish treasury.”

The nation has had some success clawing back money in what became a bone of political contention when the scandal erupted. It has seized €232 million from Shah while last month it won a 1 billion kroner award from a New York court.

The case lasted for around a year in which the court sat for a total of 108 days, making it one of the longest civil trials to take place at London’s Commercial Court. Skat was initially pursuing more than 100 corporate entities and individuals, but that number was cut down to around 50.