Denmark’s attempt to recover billions from an alleged tax fraud scheme has backfired, leaving the country’s tax authority with an estimated £400 million in legal costs after losing a landmark case against British hedge fund trader Sanjay Shah and other defendants in a UK court.

The case, one of Europe’s most complex tax battles, revolved around the so-called “cum-ex” dividend trading scandal — a web of financial transactions that allowed traders to claim multiple tax rebates on the same dividend payment. The Danish tax authority, SKAT, had sought to recover roughly £1.5 billion it said was fraudulently claimed between 2012 and 2015.

But in a ruling last month, the High Court in London dismissed SKAT’s claim, finding that Denmark had “failed to prove fraudulent intent” and that the transactions, while “morally questionable,” were technically legal under existing European market frameworks at the time.

A Costly Legal Defeat

The ruling has triggered a financial and political storm in Copenhagen. According to court documents and people familiar with the matter, SKAT could face legal fees exceeding £400 million, including payments to multiple law firms, expert witnesses, and cross-border advisors involved in the seven-year litigation.

“This is a devastating outcome for Danish taxpayers,” said Morten Brøndum, a former SKAT official. “The government spent years pursuing a case that not only failed but has now drained public resources.”

Danish Finance Minister Nicolai Wammen confirmed the government is “reviewing all legal options,” though experts say an appeal would face steep hurdles.

The Players and the Fallout

Sanjay Shah, the British financier at the center of the case, has consistently denied wrongdoing. He argued that his firm, Solo Capital Partners, operated within the law and merely exploited regulatory loopholes.

Shah had previously faced civil and criminal proceedings in Denmark and the UAE, where he resides, over similar claims. In 2023, a Dubai court ordered his extradition to Denmark, but the decision was later overturned on procedural grounds.

After the London ruling, Shah said through his representatives that the outcome “vindicates the legality of [his] business model” and that he had been “unjustly portrayed as the face of a non-existent crime.”

SKAT’s losses have reignited debate over regulatory oversight and prosecutorial overreach in Denmark. Opposition lawmakers accused the government of mismanaging the case and ignoring legal advice that warned of “significant jurisdictional and evidentiary weaknesses.”

“The case became political theatre,” said Professor Jesper Lau Hansen, a financial law expert at the University of Copenhagen. “It was driven by public anger rather than a realistic legal strategy.”

The Broader European Context

The Danish case was part of a wider European crackdown on dividend arbitrage schemes. Similar “cum-ex” investigations in Germany, France, and Belgium have led to dozens of convictions and fines totaling billions.

However, Denmark’s failed prosecution highlights the complexity of pursuing such cases across borders — particularly when financial institutions operate under differing tax laws.

European regulators have since tightened rules to close loopholes that enabled the practice. But analysts say the damage to Denmark’s reputation and public trust may be harder to repair.

“SKAT is now seen as the agency that lost billions — twice,” said Lars Løkke Rasmussen, a former Danish prime minister. “Once through fraud, and again through failed litigation.”

The Takeaway

The High Court ruling leaves Denmark not only out of pocket but politically exposed. While European governments have intensified their pursuit of tax avoidance, this case underscores the limits of legal action when financial engineering meets regulatory ambiguity.

For investors and policymakers alike, the message is clear: in the world of international finance, moral outrage doesn’t always make a legal case.