Skatteforvaltningen (the Danish Customs and Tax Administration) v Solo Capital Partners LLP & Ors [2023] UKSC 40

The Danish tax authority claimed it was defrauded of approximately £1.44 billion through false dividend withholding tax refund applications. The Supreme Court held that the revenue rule, which prevents enforcement of foreign tax laws, did not apply because no tax was ever due from the defendants – they were never taxpayers. The claim was admissible as a private law fraud claim.

Facts

Skatteforvaltningen, the Danish Customs and Tax Administration, brought proceedings against Mr Sanjay Shah and related companies alleging a massive fraud involving Danish dividend withholding tax refunds. Under Danish law, non-residents receiving dividends from Danish companies are liable to 27% tax withheld at source, with entitlement to partial or full refunds under applicable double taxation treaties.

The respondent alleged that the Solo WHT applicants made 4,590 fraudulent applications claiming refunds totalling approximately DKK 12.09 billion (about £1.44 billion). The respondent’s pleaded case was that these applicants owned no shares in Danish companies, received no dividends, suffered no withholding of Danish tax, and made false and dishonest representations to obtain payments they were not entitled to receive.

Issues

The central issue was whether the claims were inadmissible under the principle stated in Dicey, Morris & Collins Rule 20(1), which provides that 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 ‘revenue rule’ and ‘sovereign authority rule’).

Specific Questions

• Whether the revenue rule applies where no tax is due from the defendants
• Whether the claims involve enforcement of sovereign rights
• The proper scope of the exclusionary rules

Judgment

The Supreme Court unanimously dismissed the appeal, holding that neither the revenue rule nor the broader sovereign authority rule applied to the respondent’s claims.

The Revenue Rule

Lord Lloyd-Jones, delivering the judgment, held that the revenue rule only applies to proceedings where there is an unsatisfied demand for tax which foreign tax authorities seek directly or indirectly to recover. Relying on Lord Mackay’s statement in Williams & Humbert Ltd v W & H Trade Marks (Jersey) Ltd [1986] AC 368, he stated:

No countenance was given in Government of India v Taylor, in Rossano’s case nor in Brokaw v Seatrain UK Ltd to the suggestion that an action in this country could be properly described as the indirect enforcement of a penal or revenue law in another country when no claim under that law remained unsatisfied. The existence of such unsatisfied claim to the satisfaction of which the proceeds of the action will be applied appears to me to be an essential feature of the principle enunciated in the Buchanan case for refusing to allow the action to succeed.

Lord Lloyd-Jones explained the rationale:

If there is no claim, directly or indirectly, to recover tax which is due, there is no attempt to assert the sovereign authority of the State which imposed the taxes within the territory of another.

Application to Facts

The Court found that on the respondent’s pleaded case, no tax was ever due from the appellants. The applicants for refunds were never taxpayers – they did not hold shares, received no dividends, and had no entitlement to refunds. The substance of the claim was not to recover tax but to recover payments induced by fraud.

As the Chancellor stated in the Court of Appeal, which Lord Lloyd-Jones endorsed:

Whilst, because it was induced to do what it did by fraud, SKAT thought it was making repayments or refunds to the Solo etc Applicants, they were not in fact repayments or refunds at all, but abstraction of monies by the fraudsters, … in the same way as if they had broken into SKAT’s safe and stolen the monies.

The Sovereign Authority Rule

The Court also rejected arguments that the broader sovereign authority rule applied. The claims did not involve any act of sovereign character, exercise of sovereign right, or vindication of sovereign power. The respondent was simply bringing restitutionary claims available to any private citizen who had been defrauded.

Implications

This judgment provides important clarification on the scope of the revenue rule in English private international law. It establishes that:

• The revenue rule requires an unsatisfied tax claim to be applicable
• Foreign tax authorities may pursue private law remedies for fraud where no tax debt exists
• The mere fact that fraud occurred in a taxation context does not engage the revenue rule
• The distinction between enforcement and recognition of foreign tax laws remains significant

The decision aligns English law with parallel decisions in the United States and Malaysia on the same underlying facts, promoting consistency in international fraud cases involving tax authorities.

Verdict: Appeal dismissed. The claims by Skatteforvaltningen were held to be admissible in English courts as neither the revenue rule nor the sovereign authority rule applied. The case was remitted to continue to trial.

Source: Skatteforvaltningen (the Danish Customs and Tax Administration) v Solo Capital Partners LLP & Ors [2023] UKSC 40