Denmark’s national tax authority, Skatteforvaltningen or SKAT, is seeking discovery from 21 corporate service providers in Cayman and the British Virgin Islands, whose clients are suspected of being involved in a US$2.1 billion tax-refund fraud.
The Danish tax office has applied to a federal court in the Southern District of New York to request judicial assistance from Cayman and BVI authorities.
SKAT is suing dozens of US pension plans and associates in the Manhattan federal court, claiming they have profited from a scheme, allegedly set up by Dubai-based British businessman Sanjay Shah.
The suit aims to recover US$2.1 billion in dividend withholding-tax refunds claimed for shares the defendants said they owned in Danish stock market-listed companies.
The Danish tax authorities allege “the applications were fraudulent because the Plans did not actually own the shares of Danish Securities that they claimed to own, did not earn the dividends they claimed to have earned, and were not entitled to the tax refunds they claimed”.
The pension plans were able to receive dividend withholding-tax refunds to which they were not entitled, SKAT said, because they made fraudulent applications falsely representing that they meet the criteria for a full refund outlined by the double taxation treaty between Denmark and the United States.
Danish companies are required to withhold 27% tax on dividends they pay to shareholders. Under several double-taxation treaties, including the one between Denmark and the US, this tax is reimbursable to certain non-Danish shareholders.
SKAT believes the scheme involved entities in the Cayman Islands and elsewhere to create false, fictitious book entry transactions and records that supported the purported purchase, transfer or ownership of Danish securities.
According to Denmark’s tax office, the defendants allegedly purchased fictitious shares from themselves in a circular transaction using intermediaries.
“[T]he Plan Defendant would buy the shares from a short seller, and lend the shares to an intermediary (or intermediaries), who would lend the shares to the short seller that had ‘sold’ the shares to the Plan Defendant,” the court application stated.
SKAT alleges these transactions were all settled by custodians controlled by Shah, who the Danish tax office is suing in England. Shah denies the charges.
The defendants also purportedly relied on Cayman third parties to distribute the Danish tax refunds to participants in the fraud “in a way that obfuscated the true beneficiaries”, Denmark’s tax authority said.
SKAT is applying to the New York court to issue letters rogatory seeking documentary evidence and limited testimony from Cayman service providers relating to the Cayman entities.
These service providers, who are not parties of the lawsuit, are Bell Rock Corporate Services, Campbells Corporate Services Limited, CO Services Cayman Limited, DMS Corporate Services, Forbes Hare Trust Company Limited, Genesis Trust Corporate Services Ltd., Harneys Services (Cayman) Ltd., Intertrust Corporate Services (C.I.) Limited; Ocorian (Cayman) Limited, Sterling Trust (Cayman) Limited, Trident Trust Company (Cayman) Limited, Vistra (Cayman) Limited and Walkers Corporate Limited.
The discovery seeks, among other things, books of accounts, customer due-diligence records, service agreements, invoices, payments receipts, bank details and correspondence between the service providers and their clients.
With regard to entities that are registered companies, rather than partnerships, the Danish tax office also wants access to the certificate of incorporation, articles and memorandum of association, as well as the registers of shareholders, directors and beneficial owners.
“This information is relevant to establish that the Cayman Third Parties were controlled by or affiliated with Defendants and Shah, and that the Plans were not actual holders of the Danish Securities,” SKAT said in its court application, published by Offshore Alert.
“The [corporate service providers] are not parties to this lawsuit, are citizens of another country, and are not otherwise subject to the jurisdiction of this Court. Accordingly, SKAT respectfully requests that the Court issue letters rogatory to the courts of the Cayman Islands,” the application said.