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Denmark’s tax authority accused trader Sanjay Shah’s hedge fund of masterminding a “meticulously pre-planned” fraud on Monday, at the opening of a trial described by an English judge as one of the most complex to hit London’s courts.
Lawyers acting for the Danish Customs and Tax Administration (Skat) told the High Court that dozens of defendants led by Shah’s hedge fund Solo Capital Partners conducted a fraud over three years that netted them a total of about £1.44bn in dividend tax refunds.
The case is part of the sprawling “cum-ex” scandal in Europe, in which authorities in several countries claim to have been duped into refunding withholding taxes on dividends that had never been paid in the first place.
The civil case is being heard at the same time as a criminal trial against Shah in Denmark that began last month, after he was extradited from Dubai to face charges. Danish prosecutors have alleged that Shah, who is also a defendant in the High Court case, was the mastermind of a scheme that received more than DKr9bn ($1.3bn) in such refunds. He has denied wrongdoing.
Investors based outside Denmark who hold shares in Danish companies are subject to 27 per cent withholding tax on dividend payouts, and can apply for a tax rebate in some circumstances.
Skat argues the defendants did not hold shares in the Danish companies and so their applications for refunds over the period, between 2012 and 2015, were unlawful. The defendants include other traders and businesses, most of which have a low profile.
Laurence Rabinowitz KC, representing Skat, told the High Court on Monday that the defendants “received no dividends from those companies, had no liability to tax in Denmark and suffered no withholding of tax”.
He said the largest such scheme was “masterminded” by Shah’s fund, and the refunds were “facilitated by meticulously pre-planned and co-ordinated trading, which was specifically designed to involve no delivery of any shares or cash at any time”.
Shah’s lawyers, led by Nigel Jones KC, said in written arguments that the “complexity of the trade does not prove dishonesty”. Shah “held a positive, honest belief that the trades were valid”, they added.
The civil proceedings in London follow a lengthy legal battle over jurisdiction. The UK Supreme Court rejected Solo’s attempt to block the case being heard in England last year, setting the stage for the High Court trial.
The case was described by a judge at an earlier stage of proceedings as “one of the largest and most complex pieces of litigation to be heard in the Commercial Court”. Skat has presented documents to the court running to about 250,000 pages, according to Shah’s legal team.
Shah is facing up to 12 years in prison in Denmark if found guilty in that criminal case. He told the Danish court last month that his hedge fund merely exploited a legal loophole and did nothing wrong.
“It was like a ballet,” he said of the co-ordinated trading his firm and others undertook to obtain the tax refunds.
Two former British employees of Shah’s fund, Anthony Patterson and Guenther Klar, were given prison sentences of eight and six years, respectively, by Danish courts earlier this year for their roles in the scheme.
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