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US pension plans lose bid to block cum-ex tax fraud case

US pension plans lose bid to block cum-ex tax fraud case © Reuters.

COPENHAGEN (Reuters) – A group of U.S. pension plans has lost a bid to block Denmark’s tax agency from pursuing millions of dollars from them in a “cum-ex” tax fraud case after a judge in a New York district court ruled the trial could proceed.

Danish tax agency in 2018 filed civil lawsuits in federal district courts across the United States, accusing more than 100 retirement and pension plans of inflating the size of their Danish stock holdings in order to obtain higher tax refunds.

So-called “cum-ex” schemes, which flourished following the 2008 financial crisis, involved trading shares rapidly around a syndicate of banks, investors and hedge funds to exploit the tax systems of countries such as Denmark, Germany and Belgium.

In a bellwether trial in the New York court to help anticipate the results of future similar cases, the judge rejected arguments brought by seven defendants, meaning the Danish tax authority can proceed with its case.

ED&F Man Capital Markets, a brokerage fined by Britain’s markets regulator in June over the cum-ex tax scandal, provided services to two U.S.-based pension plans in relation to Danish securities and is also a third-party defendant, the judgment said.

The second bellwether defendant group is the Solo group, which includes five U.S.-based pension plans, a lawyer, two trusts and their trustees.

The Danish tax agency claims that British hedge fund trader Sanjay Shah masterminded a fraudulent scheme that involved submitting wrongful applications for dividend tax refunds on behalf of investors and companies around the world between 2012 and 2015.

Earlier this month, the UK Supreme Court denied an attempt by Shah, who was arrested in Dubai last year, to block Denmark from pursuing him and others in a 12.7 billion Danish crowns ($1.86 billion) London civil case.

Denmark’s supreme court on Monday ruled that Bech-Bruun, one of the country’s biggest law firms, must pay 400 million crowns for its involvement with a German bank that allegedly helped clients pull out of Denmark via cum-ex schemes.

($1 = 6.8320 Danish crowns)

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