Skatteforvaltningen (the Danish Customs and Tax Administration) v Solo Capital Partners LLP (in special administration) and many others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Andrew Baker |
| Judgment Date | 24 March 2023 |
| Neutral Citation | [2023] EWHC 590 (Comm) |
| Docket Number | Case Nos: CL-2018-000297, CL-2018-000404, CL-2018-000590, CL-2019-000487 & CL-2020-000369 (Consolidated Claims) |
| Court | King's Bench Division (Commercial Court) |
[2023] EWHC 590 (Comm)
Mr Justice Andrew Baker
Case Nos: CL-2018-000297, CL-2018-000404, CL-2018-000590, CL-2019-000487 & CL-2020-000369 (Consolidated Claims)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
KING'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building, Fetter Lane, London EC4A 1NL
(but handed down at the Cardiff Civil and Family Justice Centre)
Charles Graham KC, Jamie Goldsmith KC, Jonathan Schwarz, Sam O'Leary, Gideon Cohen, Maximilian Schlote & KV Krishnaprasad (instructed by Pinsent Masons LLP) for the Claimant
Nigel Jones KC, Lisa Freeman & Laurence Page (instructed by Meaby & Co Solicitors LLP) for the Sanjay Shah Defendants
Andrew Onslow KC, Tom De Vecchi & Sophia Dzwig (instructed by DWF Law LLP) for the DWF Defendants
Jonathan Godson, appearing in person
Mankash Jain, appearing in person
(certain other Defendants also attending, but not taking an active part at this trial; most Defendants not attending)
Hearing dates: 17, 19, 23, 24, 25, 26, 30, 31 January, 1, 2, 8, 9, 10 February
Approved Judgment
This is a reserved judgment to which CPR PD 40E has applied. Copies of this version as handed down may be treated as authentic.
| Introduction | [1.] |
| The Validity Trial | [10.] |
| Validity Trial Participation | [15.] |
| The General Context | [19.] |
| The Expert Evidence | [33.] |
| Danish Tax Law | [34.] |
| Danish Securities Law | [37.] |
| Market Practice | [40.] |
| Assessment | [43.] |
| The Parties' Positions | [54.] |
| SKAT | [55.] |
| The Sanjay Shah Defendants | [60.] |
| The DWF Defendants | [64.] |
| Messrs Jain and Godson | [70.] |
| The Danish Legal System | [73.] |
| Danish Securities Law | [77.] |
| Shares | [78.] |
| Dividends | [84.] |
| Danish Tax Law | [86.] |
| Relevant Tax Legislation | [86] |
| DTTs | [88.] |
| Presumptive Consistency | [93.] |
| Administrative Practice | [97.] |
| Market Practice | [104.] |
| Market Matters | [106.] |
| Custody and Settlement | [107.] |
| Stock Loans and Short Selling | [125.] |
| Cum- and Ex- | [134.] |
| ‘Market Practice’ Findings | [140.] |
| Main Discussion | [153.] |
| Dividend Accrual | [153] |
| Accruals Basis Taxation | [184.] |
| The Tax Law Twist | [193.] |
| The Contract Accruals Rule | [206.] |
| Initial Observations | [210.] |
| Financial Contracts | [215.] |
| No Share Transfer | [225.] |
| Examples A and B | [230.] |
| Example A | [231.] |
| Example B | [233.] |
| Short Selling | [241.] |
| Alleged Impracticalities | [254.] |
| Examples C to F | [282.] |
| Example C | [283.] |
| Example D | [288.] |
| Example E | [290.] |
| Example F | [292.] |
| Tax Refunds Under s.69B(1) | [295.] |
| Conclusions | [310.] |
| Appendix – Answers to the Validity Issues | [1.] |
Introduction
This litigation concerns the Danish tax regime in respect of dividends declared by Danish companies, an aspect of the taxation of income by the Kingdom of Denmark. The claimant is the Danish national tax authority. Without deciding the point, I understand that to mean the claimant is not a separate legal person from the Kingdom of Denmark. I refer to the claimant as ‘SKAT’ without deciding any question of its true legal nature or identity that goes beyond what I have just said.
Many national tax regimes use a notion of tax domicile (whether or not that label is used), such that:
(1) those who come within it are general tax subjects, having as a result what is often called an ‘unlimited’ tax liability, to denote that they are subject to taxation under the national tax regime in question on taxable gains, income, and so on (all to whatever extent they may be taxed at all by that regime), without geographical limit as to source; and
(2) those who do not come within it, who have as a result only a ‘limited’ tax liability (if any), to denote that they are subject to tax liability under the national tax regime in question only on certain types of taxable gains or income (or as the case may be), as may be stipulated by the national tax legislation, coming to them from a source in the taxing state.
The case concerns exclusively shares in Danish listed companies that existed at all material times only as a legal construct, in dematerialised and fungible form. Everything I say therefore refers only to such shares and such companies, during the period of interest in the case, which is August 2012 to July 2015.
Under Danish tax law, Danish company dividends were taxed (a species of income tax to which I shall refer as ‘Danish dividend tax’) as one head of the unlimited tax liability of legal persons who are tax domiciled in Denmark and as a head of limited tax liability imposed on legal persons who are not; and in respect of Danish dividend tax, Danish tax law operated on a withholding tax basis. Danish companies, upon declaring a dividend, were obliged to pay 27% of the dividend to SKAT and only the balance (73%) to VP Securities, the Danish Central Securities Depository (‘CSD’), for distribution to shareholders. There were exceptions to the general withholding obligation imposed on Danish companies declaring dividends, but they are not relevant for my purposes.
The payment by a Danish company to SKAT of the 27% it withheld from what it paid to VP Securities for distribution discharged the Danish dividend tax liability of all those liable to Danish dividend tax on the dividend in question. Some such legal persons might be entitled under a double taxation treaty (‘DTT’) between Denmark and their tax domicile not to be taxed on Danish dividends, or not to be taxed at a rate exceeding some specified rate below 27%. Of particular relevance in this case, for example, tax-exempt US pension plans were entitled under the Denmark-US DTT not to be taxed on Danish dividends; likewise tax-exempt Labuan corporations under the Denmark-Malaysia DTT.
That entitlement, where it existed, was or gave rise to a right under Danish law, enforceable against SKAT, because the DTTs were given effect, by statute, under Danish domestic law. The statutory technique by which that was achieved varied over time. The upshot was that if a tax-exempt US pension plan or tax-exempt Labuan corporation incurred a Danish dividend tax liability that was discharged by a withholding and payment to SKAT by the Danish company in question, it had a right under Danish law to be refunded by SKAT.
There was a difference in the expert evidence over the legal characterisation of that right. Prof Laursen, called by SKAT, thinks it is a restitutionary entitlement based upon a principle of unjust enrichment. On that specific point, I prefer the view of Mr Bachmann, called by the Sanjay Shah Defendants, that there is no unjust enrichment of SKAT by its receipt of a payment to which it is entitled as of right under primary tax legislation. I accept Mr Bachmann's evidence that the claim for a tax refund is not a restitutionary claim, but a statutory claim under Danish tax law.
Prior to 1 July 2012, there was no specific statutory provision in Danish tax law referring or giving effect to that refund entitlement. It therefore arose simply as a necessary incident of the enactment into Danish domestic law of a DTT. Since that date, s.69B(1) of the Danish Withholding Tax Act has provided as follows (in translation):
“ If a person who is liable to pay tax pursuant to section 2 hereof or section 2 of the Danish Corporation Taxation Act has received dividends, royalties or interest, of which tax at source has been withheld pursuant to sections 65–65D which exceeds the final tax under a double taxation treaty, …, the amount must be repaid within six months from the receipt by [SKAT] of a claim for repayment. …”
This litigation (and related litigation in various other jurisdictions, in particular the US, Malaysia and Dubai) concerns claims for repayments under s.69B(1) presented to SKAT and paid between August 2012 and July 2015 that SKAT says were not claims it was obliged to honour. SKAT says it was wrongfully induced to pay those claims by misrepresentations made in or implied by the reclaim forms and/or supporting documents presented to it. It says it thus paid out (in aggregate) over DKK12.5 billion (c.£1.5 billion) as (purported) dividend tax refunds it was not liable to pay, 90% or more of which was paid out in the second half of the relevant period, from March 2014. For this judgment, it is not necessary to introduce the defendants or summarise their different degrees of involvement (as alleged by SKAT) or the bases upon which SKAT says they each have a liability in connection with the payments it says it was wrongfully induced to make.
The Validity Trial
Five Claims have been consolidated: CL-2018-000297 (70 defendants); CL-2018-000404 (25 defendants); CL-2018-000590 (8 defendants); CL-2019-000487 (9 defendants); and CL-2020-000369 (7 defendants). Allowing for overlap (some defendants were named on more than one Claim Form), in total 106 defendants were named (in error, I said 114 in my Revenue Rule judgment, referred to in paragraph below). At the time of this second preliminary issues trial, there were 17 separate legal teams from 16 firms of solicitors responding to SKAT's claims, representing between them 65 of the defendants.
The remaining 41 defendants, at the time of this trial hearing, were:
...(1) 10 individuals litigating in person;
(2) 12 corporate defendants litigating without representation;
(3) 7 corporate defendants against whom judgment in default had been entered;
(4) 3 corporate defendants that no longer exist (2 dissolved, 1 liquidated);
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