After the UK Supreme Court refused to allow him to stop it from being heard in England, Danish authorities were allowed to pursue a tax fraud case worth £1.4bn against financial institutions and Sanjay Shah’s hedge fund at London’s High Court.
On Wednesday, the country’s top court ruled that the case against alleged tax fraud can proceed in London. Lawyers said this judgment had wider implications for international disputes involving “cum-ex” trading.
The Danish Customs and Tax Authority has filed a lawsuit to recover £1.44bn (£1.38bn) from multiple defendants, who they claim have submitted fraudulent tax rebate applications.
The defendants dispute the allegations. The ruling states that the defendants maintain the tax rebates and trade structures were legal and they also had a reasonable expectation the trades would comply with Danish tax laws.
This is just one of many actions that financial watchdogs are pursuing in Europe regarding “cum-ex” trading. Authorities have accused traders, brokers and institutions of orchestrating a scheme to defraud clients. This led governments to refund billions of Euros in dividend taxes they had not paid.
The case of SKAT was centered on the tax laws in Denmark regarding dividend payments. Investors who own shares in Danish companies but are outside Denmark must withhold 27 percent of the dividends. In some cases, they can request a refund of tax. However, SKAT argued the parties in the case in question did not own shares in Danish companies and that their requests for refunds were illegal.
SKAT was initially hampered when the London High Court ruled two years ago , that English courts do not have jurisdiction to deal with the tax laws of foreign states. Last year, the Court of Appeal reversed this decision.
Shah’s Solo Capital Partners took the case before the Supreme Court. But the court’s unanimous Wednesday decision to side with SKAT paves way for England’s Commercial Court next year to hear the case.
Rob Fell, partner of Travers Smith law firm, said that the Supreme Court’s ruling would have “great consequences for numerous cumex cases currently being heard throughout Europe”.
The Supreme Court acknowledged that it was “a well-established and nearly universal principle” that courts in one country would not enforce penal or revenue laws from another country.
The Danish authorities added that their case did not concern unpaid taxes, but rather whether defendants had cheated SKAT in order to receive refunds they never deserved.
SKAT stated that it was “satisfied” with the verdict and now looks forward to the main English trial.
Shah’s spokesperson declined to comment.