Supreme Court allows Danish tax authority to litigate in English courts

15 November 2023

The Supreme Court has recently ruled that a claim brought by the Danish Customs and Tax Administration, Skatteforvaltningen (SKAT), is admissible in England and Wales on the basis that the claim is not an attempt to enforce Danish tax laws in England, but is rather a claim for reimbursement of sums of which it has been defrauded. 

SKAT has issued claims in England and Wales against a number of parties who made allegedly fraudulent applications for refunds of withholding tax on Danish dividend payments to which they were never entitled. This claim is one of many resulting from the Cum-Ex trading scandal.

As explained in our previous article on the Court of Appeal decision, there is a well-established and almost universal principle that the courts of one country will not enforce the penal and revenue laws of another country. This principle is also referred to as “Dicey Rule 20” (formerly “Dicey Rule 3”)  or the "revenue rule”.

Initially, the High Court ruled that SKAT’s claim was inadmissible in this jurisdiction on the basis that it involved the enforcement of Denmark’s sovereign right to tax. Last year, the Court of Appeal overturned that decision.

The Supreme Court has now unanimously upheld the decision of the Court of Appeal that the claim brought by SKAT does not fall within the scope of the revenue rule. This means that SKAT’s claim can proceed to trial in the Commercial Court, which is listed for April 2024 and is scheduled to last for over a year.

In the decision, the Supreme Court outlined how the revenue rule only applies to proceedings in which there is an unsatisfied demand for tax which foreign tax authorities seek directly or indirectly to receive. If there is no claim, directly or indirectly, to receive such tax, then there is no attempt to assert the sovereign authority of the State which imposed the taxes within the territory of the other. 

SKAT’s claim does not involve any allegations that sums are due as tax, or that it has been cheated out of tax which was due. SKAT’s position is that there was never any tax payable by any of the appellants, and that the applications for refunds were based on the lie that they had paid the tax in the first place. The Supreme Court therefore found that the substance of the claim was not to recover tax, but to recover payments made by SKAT which were induced by fraud and to which the recipients were not entitled. The revenue rule therefore did not apply. 

The Supreme Court also noted that similar decisions relating to the non-application of the revenue rule had been made for similar reasons in parallel proceedings brought in the United States and Malaysia. 

The Supreme Court additionally rejected the appellant’s argument that SKAT’s claim involved an exercise of its sovereign rights, describing the claim as clearly not involving any act of sovereign character or exercise of a sovereign right.

In part due to the challenges of cross-border litigation, the fall-out from the Cum-Ex trading scandal has not yet been fully realised. However, there is a growing impetus for increased international cooperation when it comes to fighting economic crime. Whilst the revenue rule remains good law, the Supreme Court’s decision in the SKAT case makes it clear that the scope of the rule is not without limit. It remains to be seen whether this will prompt other tax authorities to consider the underlying substance of their potential claims in light of these limitations, in order to determine whether such claims actually fall within the ambit of the revenue rule.

"No tax is or ever was due, unpaid or evaded. The Danish taxation system simply provided the context for the fraud."