Skatteforvaltningen (the Danish Customs and Tax Administration) v Solo Capital Partners LLP & Ors [2023] UKSC 40 (8 November 2023)
Citation: Skatteforvaltningen (the Danish Customs and Tax Administration) v Solo Capital Partners LLP & Ors [2023] UKSC 40 (8 November 2023)
Rule of thumb: Stare-decisis: If a UK resident carries out fraud, such as a tax fraud, in a foreign country, such as Denmark, can the foreign country sue you to get the money back in the UK Courts? Yes, this is deemed to be a follow-on civil action – Denmark could pursue a UK citizen in the UK Courts if a UK citizen carried out a fraud in Denmark (to try to get the money owed back off the UK citizen).
Background facts: The facts of this case were that people had contacted Solo Capital to make fraudulent claims to the Danish Government for tax returns. The system in Denmark is that when companies give out dividends, all the dividends go to the Danish Government, and then people apply to the Danish Government to get their dividends released with the Government sending it out with the tax deducted. The Danish Government discovered that Solo Capital had made fraudulent claims which they had paid out so sued Solo Capital in the UK to get the money back from them.
Parties argued: Solo Capital argued that this was a Danish tax law matter, which was Danish administrative law. They therefore argued that under the international law principle of territoriality a foreign Court cannot rule upon the administrative law of a foreign country, as the Danish Government were seeking to get the British Court to do. Solo concluded that territoriality meant that the British Court was not allowed to pass Judgment on Danish administrative/tax law.
The Danish Government argued that Danish tax law was not invoked. The Danish Government argued that the principle was whether the British legal standard for civil fraud was met by Solo Capital, and the technicalities of Danish tax law were irrelevant.
Court held: The Court upheld the arguments of the Danish Government. Danish tax law was not the subject of the debate. The subject was follow-on from crime. A trial was set for this case to consider whether Solo Capital Partners’ filling in of the form met the British legal test of civil fraud such that they had to pay back all the money the Danish Government had to Solo Capital’s clients.
Ratio-decidendi:
6. The case concerns certain applications in which claims were made for the refund of Danish dividend withholding tax (“WHT”). Non-residents of Denmark who receive dividends from Danish companies are liable to pay 27% tax which is withheld at source. Non-residents of Denmark who meet the requirements set out in the Danish Withholding Tax Act (“WHT Act”) and applicable double taxation treaties are entitled to a partial or full refund of the tax so withheld.
7. Non-residents of Denmark are liable to tax under either section 2 of the WHT Act or section 2 of the Danish Corporation Taxation Act on dividends they have a right to receive from Danish companies. The Danish company must withhold 27% of the dividend it has declared pursuant to section 65 of the WHT Act and pay this to the respondent pursuant to section 66 of the WHT Act, to discharge the tax liability described above. As reflected in section 69B(1) of the WHT Act, a non-resident shareholder who is liable to tax (under section 2 of the WHT Act or section 2 of the Danish Corporation Taxation Act) and who has a right to receive dividends, from which tax has been withheld by the Danish company, may claim repayment if the tax withheld exceeds the final tax that Denmark is permitted to levy in accordance with the terms of a relevant double taxation treaty.
8. Danish public companies distribute the dividend declared, net of tax withheld, to the accounts of custodians or individuals as designated by the Danish central securities depositary based on the information in its register. A custodian registered with the central securities depositary may have clients who are themselves custodians.
9. Non-residents of Denmark usually hold shares via a custodian, rather than directly with the central securities depositary….
12. The respondent’s pleaded case is that the Solo WHT applicants owned no shares in any relevant Danish companies, received no dividends on any such shares and suffered no withholding of Danish tax in respect of any such dividends. The respondent alleges that, in respect of each of the 4,590 applications made to it by clients of the custodians in these proceedings, the representations made by the Solo WHT applicants were false and made dishonestly or recklessly. It alleges that it was fraudulently induced to make payments amounting to about DKK 12.09 billion (equivalent to about £1.44 billion) pursuant to these claims.
13. The defendants deny the claims against them. In particular, they maintain that the trade structures resulted in the USPPs and Labuan companies being entitled under Danish tax law to make bona fide claims pursuant to section 69B(1) of the WHT Act. Alternatively, they maintain that they had a reasonable belief that the trades were lawful and complied with Danish tax law…
51… the tort of deceit or fraudulent misrepresentation and was not based on a debt accruing from taxes due and owing or tax evasion under the tax regime of Denmark. It observed that the claim did not arise from the tax regime of Denmark because the defendants “never owned Danish shares and were therefore never within the Danish tax regime to begin with”. The claim for the recovery of monies or property was no different from that which could be brought by any private individual or entity, being the victim of a fraud and, as a result, the revenue rule had no application’.
Lord Lloyd-Jones
Warning: This is not professional legal advice. This is not professional legal education advice. Please obtain professional guidance before embarking on any legal course of action. This is just an interpretation of a Judgment by persons of legal insight & varying levels of legal specialism, experience & expertise. Please read the Judgment yourself and form your own interpretation of it with professional assistance.