Danish tax authority wins "cum-ex" tax fraud case at the Supreme Court

The Supreme Court has unanimously found in favour of the Danish tax authority in Skatteforvaltningen v Solo Capital Partners LLP and others [2023] UKSC 40.  

The background to this is the vast “cum-ex” scandal which has hit many European jurisdictions.  The claim in question is brought by the Danish Tax Authority (known as SKAT) in the English courts against a large number of defendants.  SKAT argues that (very broadly) the defendants fraudulently induced it to pay out refunds of Danish withholding tax (relating to dividend payments made by Danish companies) to which the recipients were not entitled, to the overall tune of almost £1.5 billion.  A particular focus of SKAT’s case is that the refund applicants owned no shares in any Danish companies, received no dividends on any such shares and suffered no Danish withholding tax.  

The defendants had argued that SKAT’s claims are inadmissible under the long-standing and widely-recognised Revenue Rule”.  This states that “the English courts have no jurisdiction to entertain an action for the enforcement, either directly or indirectly, of a penal, revenue or other public law of a foreign State”.  

The Supreme Court agreed with the Court of Appeal that the Revenue Rule did not apply to this case. Their reasoning was that the claim is not a claim for the direct or indirect enforcement of foreign tax laws.  Rather it is essentially a claim by a victim of an alleged fraud for repayment of sums which were taken from it.  While the Danish tax system provided the context for the alleged fraud, the refund applicants were never Danish taxpayers – at no point were they under any liability to pay Danish tax.  

The Supreme Court also rejected a secondary argument that the claims were inadmissible by virtue of the “sovereign authority rule” – i.e. that an action for the enforcement, directly or indirectly, of a public law of a foreign State is inadmissible.  In the Supreme Court’s view, the claim does not involve an act of a sovereign character; rather it is a claim that would equally be open to any private citizen who alleges they have been defrauded in a similar way.

The impact of this decision is potentially very significant.  Most immediately, it means that SKAT’s claims can proceed to a full trial (scheduled to begin in April 2024 and last for over a year).  More generally, the Supreme Court has re-asserted that the Revenue Rule remains alive and well, but made clear that it does have limitations and its scope needs to be carefully considered in line with the purpose and rationale of the rule.  Just because a foreign state’s tax system provides the context and background for a claim, that does not mean that it will be inadmissible – it is necessary to consider closely the substance of the claim.  And while the facts of this case are extraordinary, it will be interesting to see if other tax authorities take encouragement from it and explore different avenues to recover sums owed to them.