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In this comment, Bech-Bruun’s management presents its position on the current media attention regarding the alleged dual role and dividend tax.

Over the course of the past ten days, Bech-Bruun has experienced intense criticism in the media and questions have been raised about our qualification, advice, credibility and decency as a business. 

The criticism is based on our role in drafting an account to the Ministry of Taxation on the tax authorities' (SKAT's) payment of refund of dividend tax, relating in particular to the administrative liability at SKAT and the Ministry of Taxation as well as the roles of ministers in the case. We have not heard from anyone, also not from the Minister, that this assignment has not been handled to everybody's satisfaction with our account from December 2017. 

Questions have been asked whether the drafting of so-called "legal opinions" to a major German law firm in 2014 and 2015 for use in their provision of advice to a German bank entailed us being disqualified due to conflicts of interests in handling the assignment for the Ministry of Taxation. It has also been called into question that we have this summer undertaken cases against the Danish Tax Agency for two Canadian pension funds. 

We did not know the full extent of the case when it suddenly surfaced in the public with the Minister for Taxation in the full glare of publicity mentioned Bech-Bruun at a press conference. Since then we have reviewed everything in detail in order to be able to understand what happened in 2014 and 2015 when we prepared a legal opinion to the German law firm. This has concerned the contents of the advice provided and also the preconditions under which the advice was provided. We have had staff turnover in this area and we were thus forced to go back in our records and piece together information in order to get the full picture. This has made us wiser and we are frustrated that we have not at an earlier stage been able to clear up the many misunderstandings. 

We share the Minister for Taxation's outrage at the dividend tax fraud and the presumed extent of it. Linking it to Bech-Bruun and advice provided by us is, however, totally incorrect and potentially very harmful for our business.

Bech-Bruun has not prepared a ”dividend tax model” for a German bank, nor have we given such a model our seal of approval
We want to make perfectly clear that we have never provided advice on or contributed to fraud involving refund of dividend tax. We take sharp issue with all types of fraud, deception and tax evasion. And we are fully aware that as a law firm we have a particular ethical responsibility in respect of assessing whether our advice may be used for criminal purposes. There was nothing to indicate that this should be the case in 2014 and 2015 when we issued our legal opinions to the German law firm and we still do not know whether this has happened. 

In the opinions, our employee was to assess the risk for a German bank acting as a custodian bank in connection with share loans as well as buying and selling of Danish shares to its customers connected to a specific model on share loans, etc. The model was presented to us – and it has thus not been developed by us. It had been prepared by another law firm which had also made assessments about the tax position for parties trading in and lending shares under the model. This also means that we have not made any type of assessment of the model. And accordingly, we have not given it our seal of approval. Had we been asked to prepare a so-called "second opinion" of the model and its tax consequences, this would have amounted to giving it our seal of approval. We were not asked to do this, and we have not done so. 

Despite of the fact that we had not prepared the tax model, it was our opinion that the model for refund of dividend taxation in connection with share loans, etc., which was presented to us by the German law firm, was legal if used as contemplated and described. The German law firm has prepared the model and the description based on an underlying Danish tax opinion from another Danish law firm. As far as we know, this has in another context been presented to the Danish Bar and Law Society without this having given cause for any comments. Consequently, the conclusion of our assessment of the bank's risks associated with acting as custodian bank on share loans, buying and selling for its customers in respect of Danish shares on which dividends were distributed was that these risks were limited. 

At the same time, it is also important to emphasize that refund of dividend tax as well as loan of and trading in dividend-yielding shares and double taxation treaties across borders are complex, but integrated parts of the financial system and the tax system. Double taxation treaties are treaties with other countries designed, among other things, to attract international investors to Denmark while also making it possible for Danish investors to make investments internationally.  This way they obtain an advantageous tax position in relation to the dividends distributed on the shares. 

We have no knowledge of how the bank subsequently chose to arrange its custodian services in respect of its customers.  However, it is clear that the bank could not use Bech-Bruun’s opinion and conclusion if it instead offered its customers other services or derogated from the model and the assumptions. For the same reason we find it difficult to see that Bech-Bruun’s advice could in any way have been abused. 

We have learned that indications have now been seen that the bank or its customers are possibly involved in fraud against the Danish state in the very area of refund of dividend tax. We are as shocked by this as everybody else.  And if this is the case, it is naturally very unfortunate that Bech-Bruun has – through this German law firm – provided any kind of advice to the bank about Danish law in 2014 and confirmed this in 2015.

However, following our very detailed review of the course of events in connection with our drafting of the opinion in question, we have now established, however, that we did in fact, before issuing our opinion, make sure that the presented model could not lead to refund of dividend tax multiple times for dividend paid on the same share. 

We are of course frustrated that it now appears in the press as if the model on which we have based our opinion on something completely different is now suspected of being the model used in the fraud. We are of the clear opinion that this is a misunderstanding. In our opinion, the fraud that may have taken place must necessarily have taken place in another way than by following the model on which we have based our opinion. For instance by carrying out the share transactions in a different way which could make it possible to apply for refund of dividend tax multiple times for dividend on the same share, or by using forgery, deception, etc. 

Our opinions to a German law firm with a German bank as client did not make us disqualified due to conflicts of interests in respect of the legal inquiry for the Ministry of Taxation
It is our clear opinion that we were qualified and have thereby not had dual roles when we made a bid for and carried out the task of preparing “Account concerning SKAT’s payment of refund of dividend tax” for the Ministry of Taxation. We will account for this in further detail for the General Council of the Danish Bar and Law Society and the Disciplinary Board. 

In December 2016, the Ministry of Taxation invited bids for a legal inquiry into the dividend case. The inquiry was not to assess what the Ministry of Taxation referred to as “the presumed fraud”. It was in particular to describe the reasons why SKAT did not until the summer of 2015 become aware of the presumed fraud which had apparently taken place for a number of years. The inquiry was also to assess whether the Ministry of Taxation had neglected its obligation to supervise SKAT and consider whether mistakes had been made or misconduct taken place in SKAT and in the Ministry of Taxation in connection with the case. The inquiry was also to assess whether against this background a basis existed for instituting proceedings on disciplinary or employment law liability against civil servants.

SKAT introduced as a condition that the successful bidder was not to “have or have had client-related and/or other relations to the persons, companies, etc., referred to in the terms of reference and/or the proposal for parliamentary resolution of 16 December 2016 to order a legal inquiry rendering the Lawyer disqualified due to conflicts of interest in respect of conducting the legal inquiry”.

Another bidder asked SKAT for a list of the persons and companies, etc., which SKAT was looking at in relation to fraud with dividend tax refunds, which we were also interested in in order to be able to run a conflicts check that was as precise and thorough as possible in our client database encompassing more than 10,000 clients. SKAT did not comply with this request. 

At the time, the only person, etc., known to the public as having potentially committed fraud involving refund of dividend tax, was Sanjay Shah and his company Solo Capital. Bech-Bruun had not assisted any of them or any of the companies which Sanjay Shah had been mentioned in connection with in the press. For the very reason that Bech-Bruun is not assisting with fraud committed against the State or any other party, we could against this background declare ourselves to be qualified and undertake to conduct the legal inquiry.

The dividend tax case had previously been investigated by the National Audit Office, amongst others. It appears from the publicly available account on this investigation that the Ministry of Taxation was of the opinion that share loans were not covered by the case involving the presumed fraud. Accordingly, it would not have been relevant to run a search directed against cases involving share loans.

Knowledge of international tax matters was not mentioned in the contract documents as a qualification which a bidder was to possess. Considering the fact that the inquiry was to be conducted in the tax area, we did, however, find it natural in the relevant lawyer’s résumé to include information about his experience with the area, including advice on dividend.

Not long after we were tasked with conducting the legal inquiry we were approached by a journalist who asked about the advice Bech-Bruun had provided in the area and we confirmed that we provided advice on dividend. We immediately reported this conversation to the Ministry of Taxation – not because it caused doubts about our qualification, but out of consideration for the Ministry of Taxation’s coordination of information, if any, to be given to the press. We have subsequently learned that the Ministry of Taxation notified all parties in Parliament about our report in this respect. 

The Minister for Taxation has now informed us that customers in the German bank to which we provided advice through the German law firm in 2014 and 2015 are possibly involved in fraud with refund of dividend tax. 

As already mentioned we have not in any way provided advice to the bank on share loans and transactions or connected possibilities for refund of dividend tax. We have advised the bank on its position in terms of liability under Danish law for custodian services provided to its customers as indicated above, if the bank’s customers and the tax authorities might have different views on the treatment for tax purposes of the transactions which were described to us. If the bank and its customers had applied the model which we were asked to take into account in our assessment it could not in any way have contributed to fraud being committed. The model we were asked to take into account in our opinion lies inside the scope of the area which the Ministry of Taxation had stated to the National Audit Office does not relate to dividend tax fraud. 

We are naturally upset that we can now establish that we have potentially, albeit indirectly, advised an undertaking now being linked to dividend tax fraud in Denmark. It was, however, in no way possible for us – or for that matter for other parties making bids for conducting the legal inquiry for SKAT – to establish such a connection before the Ministry of Taxation itself – several years later – provides us with this information. Accordingly, we believe that we have done everything possible in order to safeguard ourselves against qualification issues when we undertook to conduct the inquiry.

At the same time, we would like to stress that we can still fully defend the content of the account we submitted to the Ministry of Taxation.
Employment-related consequences
Unfortunately, employees of Bech-Bruun – in the summer of 2018 – chose to accept as clients certain Canadian pension funds in relation to an already pending dispute with the Danish Tax Agency relating to refund of dividend tax. We were talking about representation in a genuine dispute and this is naturally perfectly legitimate. Everybody is entitled to legal representation. Taking into account the nature of the case and the fact that the work for the Ministry of Taxation on the legal inquiry had been concluded a good while before, this was also acceptable according to the Code of Conduct for the Danish Bar and Law Society. Despite of this, accepting the cases for these clients entailed setting aside our own guidelines as we do not, among other things seen in light of the dividend tax scandal, want to represent clients in such disputes. In our opinion this is an expression of poor judgment and human error on the part of the employees in question. Consequently, we have terminated the client relationship and certain employees are no longer with us. 

We stand by our core values stipulating that it must never be possible to question Bech-Bruun’s credibility or decency. Furthermore, we are in the process of discussing which additional measures we may introduce to avoid such situations in the future.

Morgan Stanley
Since 2004, Bech-Bruun has provided corporate law assistance to Morgan Stanley Equity Finance (Denmark) ApS owned by the international investment bank Morgan Stanley. Various Bech-Bruun partners have been members of the company’s board of directors. The company has been mentioned in connection with tax proceedings in Switzerland relating to a number of banks having traded in Swiss securities from countries where the Swiss dividend taxation was reduced by a double taxation treaty. Bech-Bruun has not provided advice regarding the tax model. It appears from the publicly available accounts that the company has not had any activities for a number of years and that the company is awaiting clarification as to the scope of tax liability, if any, before it can be discontinued. Following clarification of the tax proceedings in Switzerland (through three court instances), the company has paid the tax it has been ordered to pay. Bech-Bruun is convinced that the company has not been involved in tax fraud or tax evasion as has been insinuated in the Danish press. 

Accusations in the media
As mentioned, Bech-Bruun has over the course of the past ten days, experienced intense criticism in the media and questions have been raised about our qualification, advice, credibility and decency as a business.  However, not only have questions been raised. Various media have made a number of accusations and used expressions which are in no way based on the facts of the case and which are contrary to the media ethics rules. The statements made are harmful, insulting and detrimental to our reputation. Consequently, certain media have received a letter from us in which we request rectification. In respect of these media we reserve our position in all respects. 

Changes in societal norm and the future
In November 2014, the Ministry of Taxation published recommendations for strengthened cooperation among advisors and industries to counter cross-border tax evasion. 

Five specific recommendations are designed to contribute to minimising advice which may induce cross-border tax evasion.

We welcomed these recommendations and have naturally advised according to them ever since.

As lawyers we have particular social responsibility which we must continuously bear in mind. Naturally the societal norm changes all the time in line with the development of society and accordingly a need always exists for ensuring that our advice is in accordance with our societal responsibility as a law firm.

Today, there are no doubts that we should not have undertaken to provide the (fully legal) advice which we provided in 2014 and as confirmed in 2015. We have in fact as mentioned not developed the model, but when looking back now at what took place it may possibly best be described as legal, but perhaps too aggressive tax planning. Should it in fact turn out that the client of the German law firm – the bank – has been involved in fraud, this will apply all the more – also seen in light of the societal norm predominant in 2014. This is beyond doubt.

We would very much welcome the opportunity to engage with the Ministry and the rest of the consultancy sector in a discussion about whether the 2014 recommendations are still adequate seen in light of the societal norm for tax advisors in 2018 and in the future in order for us as advisors to contribute to ensuring that a joint understanding exists of the boundaries for provision of advice on international tax planning. 


Bech-Bruun Copenhagen office