The Danish tax authority has been ordered to pay £46m in legal bills by a London court after its attempt to sue a British former hedge-fund investor failed.
The Danish taxman put a $1.9bn (£1.5bn) fraud claim through the UK courts against Sanjay Shah and more than 100 other individuals and companies accusing them of fraudulently claiming tax rebates.
It is part of the so-called cum-ex scandal that rocked Europe and led to arrests, raids and court cases dragging in some of the financial world’s largest players.
The name comes from the Latin for with-without and refers to the stocks with and without their dividends.
Cum-ex trading involved using a now-closed, and obscure, legal loophole to claim tax credits for both buyers and sellers of shares by buying shares just before their dividends expired and then selling them on, straight away.
The trades exploited an interpretation of Danish tax laws which seemed to allow numerous claims of ownership for the same stock and the right to a refund of taxes withheld from dividends. This enabled more than one investor to claim a refund on a tax that had been paid only once.
Shah, accused of masterminding the Cum-Ex scheme, denies any wrongdoing and insists his trades were legitimate.
He has repeatedly claimed that he is a victim of politically motivated allegations by the Danish government. It is a view that the high courts of London seem to concur with.
Mr Justice Andrew Baker at the High Court in London dismissed the case in April on the basis that the Danish authority was not entitled to enforce its own tax laws in an English court.
He said that the case was “politically as well as financially motivated” and “aggressively pursued, by a sovereign state with a willingness to expend effectively unlimited resources.”
The judge called the litigation “the subject of ill-judged public statements by senior Danish politicians appearing to pre-judge the factual issues that would have fallen to be determined by the court”.
Although the costs are significant, they will not have come as a shock, said Azizur Rahman, a senior partner at business crime solicitors Rahman Ravelli, as budgeting the costs of a case is an established legal procedure.
“Judging by the dogged approach taken so far by Denmark over Cum-Ex, it would not be surprising if much more legal action were to follow,” Ravelli told City AM.
“While the Danish tax authority has lost this case – and is having to foot a very large bill for doing so – it still has other options at its disposal. It can and is bringing civil actions and or criminal proceedings in Denmark against those it blames for the financial impact of Cum-Ex.”
Documents obtained by the Danish media show the tax authority has been ordered to pay £46m of the £72m owed to lawyers by this week. Over £8m is owed to Shah’s legal team while Nigel Jones QC, Lisa Freeman and Laurence Page will receive over £2m each.