Open Editor's Digest for free
Rula Khalaf, editor of the Financial Times, selects her favorite stories in this weekly newsletter.
The Danish tax authority accused trader Sanjay Shah's hedge fund of orchestrating a “meticulously planned” tax fraud on Monday, opening a trial that an English judge described as one of the most complex to hit London's courts.
Lawyers representing the Danish Customs and Excise Service (SCAT) told the High Court that dozens of defendants led by Shah's hedge fund, Solo Capital Partners, conducted the fraud over three years, resulting in them receiving a total of about £1.44 billion in recoveries. Profits taxes.
The case forms part of Europe's sprawling “surrender” scandal, with authorities in several countries claiming they were cheated out of recovering withholding taxes on dividends that were never paid in the first place.
The civil case is being considered in conjunction with the criminal trial against Shah in Denmark, which began last month, after he was extradited from Dubai to face charges. Danish prosecutors alleged that Shah, who is also a defendant in the Supreme Court case, masterminded a scheme that obtained more than 9 billion Danish kroner ($1.3 billion) from these refunds. He has denied any wrongdoing.
Investors resident outside Denmark who own shares in Danish companies are subject to a 27% withholding tax on dividends and can apply for a tax deduction in some circumstances.
Skatt says the defendants did not own shares in Danish companies, and therefore their requests for refunds between 2012 and 2015 were illegal. The accused include merchants and other companies, most of which are unknown.
Lawrence Rabinowitz KC, representing SCAT, told the High Court on Monday that the defendants “did not receive any dividends from those companies, did not incur any tax liability in Denmark and were not subject to any tax deduction”.
He said the largest such scheme was “masterminded” by the Shah Fund, and the recoveries were facilitated through carefully coordinated and pre-planned trading, which was specifically designed not to involve the delivery of any shares or cash at any time.
Shah's lawyers, led by Nigel Jones KC, said in written submissions that “the sophistication of the trade does not prove dishonesty”. They added that Shah “had a positive and sincere belief that the deals were valid.”
The civil proceedings in London follow a long legal battle over jurisdiction. The UK Supreme Court rejected Solow's attempt to block the case from being heard in England last year, paving the way for a High Court trial.
A judge described the case at an earlier stage of the proceedings as “one of the largest and most complex litigation ever heard in the Commercial Court”. SCAT submitted documents to the court amounting to about 250,000 pages, according to Shah's legal team.
Shah faces up to 12 years in prison in Denmark if proven guilty in that criminal case. He told a Danish court last month that his hedge fund had exploited a legal loophole and had done nothing wrong.
“It was like a ballet,” he said of the coordinated trade his company and others made to get tax refunds.
Danish courts earlier this year sentenced two former British employees of the Shah Fund, Anthony Patterson and Gunther Klar, to eight and six years in prison respectively for their roles in the scheme.
