Skatteforvaltningen (Danish Customs and Tax Divisions) v Solo Capital Partners LLP (in special administration)

This was an appeal by the claimant Danish tax authority (SKAT) from a decision ([2021] EWHC 974 (Comm)) that the English court had no jurisdiction to entertain its claims because they involved the enforcement of the revenue or other public law of a foreign State.

SKAT's claims were for the repayment of refunds of Danish withholding tax (WHT) which it said it had been induced to make by fraudulent misrepresentation. Danish companies which paid dividends to their shareholders were obliged to withhold tax and pay it to SKAT. Foreign recipients of the dividends were entitled to a refund of WHT where it exceeded the permissible taxation on the recipient under a relevant double taxation treaty. SKAT alleged that numerous defendants had made fraudulent claims to WHT refunds when those defendants were never shareholders in Danish companies and had never received dividends from which tax had been withheld.

The court directed the trial of a preliminary issue as to whether SKAT's claims were inadmissible by virtue of the rule of law, referred to as Rule 3 in Dicey, Morris & Collins on the Conflict of Laws, because they were claims to enforce the revenue or other public law of Denmark.

The judge concluded that SKAT's claims were inadmissible, because a claim to recoup a tax refund erroneously paid was in substance a claim directly or indirectly to enforce a foreign tax law, even where SKAT had framed its claims as private law causes of action. SKAT's main interest in bringing its claims was to vindicate its right to pay WHT refunds only where applicable revenue law eligibility conditions were satisfied.

The judge went on to consider whether SKAT's claim was a ‘civil and commercial matter’, rather than a ‘revenue … matter’, for the purposes of art. 1(1) of the Brussels Recast Regulation 1215/2012 and the Lugano Convention, and held that it was. He held that the decision of the Court of Appeal in QRS 1 ApS v Frandsen [1999] 1 WLR 2169 that a claim within Dicey Rule 3 was a revenue matter was inconsistent with subsequent decisions of the European Court of Justice. He further held that Dicey Rule 3 was a substantive rule of English law that was not ousted or disapplied by the Brussels-Lugano regime.

SKAT appealed on grounds that its claims (i) were not within Dicey Rule 3 and (ii) were ‘civil and commercial matters’ under the Brussels Recast Regulation. Ground (i) was not pursued in respect of one defendant (ED&F Man) the claim against whom was based on negligent rather than fraudulent misrepresentation.

Held, allowing the appeal in part:

1. SKAT's claim was not a claim to unpaid tax or a claim to recover tax at all. It was a claim to recover moneys which had been extracted from SKAT by fraud. The submission that the claim to repayment was a claim to tax was wrong as a matter of analysis and the judge fell into error in accepting it. There was no tax due and those who committed the fraud were never taxpayers. As there was no unsatisfied claim to tax, the revenue rule did not apply, even though SKAT might be an emanation of the Danish state. The argument that the claim was precluded by the wider sovereign powers rule in Dicey Rule 3 was equally misconceived. In bringing a claim to recover the moneys of which it had been defrauded, SKAT was not doing an act of a sovereign character or enforcing a sovereign right, nor was it seeking to vindicate a sovereign power. Rather it was making a claim as the victim of fraud for the restitution of moneys of which it had been defrauded, in the same way as if it were a private citizen. Whilst exploitation of the Danish WHT regime might have been the mechanism by which the fraud was committed, it did not follow that the claim involved the enforcement of that regime. The claim was neither a claim for unpaid tax nor the exercise of a sovereign power. There was no provision in the Danish WHT legislation which entitled SKAT to recover the overpayments, nor had any of the defendants identified any provision which would entitle SKAT to bring tax proceedings to recover the overpayments. The claims of SKAT against the alleged fraud defendants were not inadmissible by virtue of Dicey Rule 3. (Government of India v Taylor[1955] AC 491, Williams & Humbert Ltd v W&H Trade Marks (Jersey) Ltd[1986] AC 368andMbasogo v Logo Ltd[2006] EWCA Civ 1370; [2007] QB 846followed.)

2. Whatever the reason for SKAT not having pursued ground (i) against ED&F Man, SKAT was fixed with the judge's conclusion that, so far as ED&F Man was concerned, Dicey Rule 3 made the claim inadmissible. It followed, so far as that defendant was concerned, that either the revenue rule applied or the claim involved the exercise or assertion of a sovereign right. Whilst the test for the application of Dicey Rule 3 might not be identical to that for determining what was a ‘revenue … matter’ for art. 1(1) of the Brussels Recast Regulation, its application led to the same answer. If Dicey Rule 3 applied, then by the same reasoning, the basis for the claim by SKAT against that defendant was either a right which arose from an exercise of public powers or a legal relationship characterised by an exercise of public powers, from which it necessarily followed that the claim was a revenue matter outside the Brussels Recast Regulation. The claims against ED&F Man remained inadmissible by virtue of Dicey Rule 3, as those claims were a revenue matter so that the Brussels Recast Regulation did not apply to them. (QRS 1 ApS v Frandsen[1999] 1 WLR 2169applied andR & C Commrs v Sunico ApS (Case C-49/12)[2014] QB 391considered.)