This is an incredible story. In short: Denmark automatically withholds taxes on dividends. If you’re a foreign shareholder, you can apply for a refund on the withholdings. But they weren’t actually checking whether you owned the shares.
1. There was a pool of retirement accounts that traded with each other.
2. In an example of the scam, one of these accounts would place an order to sell Danish stocks short, presumably cum-dividend.
3. Another account would respond by placing an order to buy the same stocks. This order never went through, presumably because it was placed at a lower price point.
4. The "buy" account would get its dividend taxes spuriously refunded and then cancel the buy order. The "sell" account would cancel its sell order.
I don't see what the role of the "sell" account is. It looks to me like you could do exactly the same thing with just the "buy" account.
https://www.reuters.com/article/germany-dividends/dividend-t...
In this case, though, it involved a bank that owned the shares: The bank would loan the shares to a shorter, the shorter would sell them to a buyer, and both the bank and the buyer would collect the dividend refund.
I wonder if there's some detail the NYT author missed in terms of double ownership that would make the short sale make more sense.
Under US law, a dividend paid to you by a borrower is taxable as ordinary income, not as a qualified dividend -- usually the borrower (short seller) will pay a premium on the interest to reflect the difference in effective tax rates.
I don't know the rules for Denmark, but it seems that having a withholding requirement on the dividend payer ads to complexity, because it requires a refund process. It might be better to have simply required reporting of the income, and maybe required withholding by brokerages.