Skatteforvaltningen v. Solo Capital – UK Supreme Court confirms that the revenue rule does not apply to fictitious tax refund claims made by a non-taxpayer

The Danish Customs and Tax Divisions (“SKAT”) sued in an English civil court to recover £1.44 billion which it had paid based on allegedly fraudulent claims for refunds of Danish dividend withholding tax – SKAT alleged that most of the appellants (“Solo Capital”) had fraudulently misrepresented that they, as shareholders of Danish companies, had been subject to withholding at a rate in excess of the Treaty-reduced rate on dividends when, in fact, they never had held any shares in any of the relevant Danish companies.

Lord Lloyd-Jones rejected the submission of Solo Capital that SKAT’s claim was precluded by the revenue rule, namely, that the courts of one country will not directly or indirectly enforce the revenue laws of another country. He stated (at para. 38):

[SKAT] has been paid all the tax to which it was entitled by the genuine shareholders in the Danish companies. The substance of the claim is not to recover tax but to recover payments made by [SKAT] which were induced by fraud and to which the recipients were not entitled on any basis. It is a claim by a victim of fraud for reimbursement of the sums of which it has been defrauded.

Neal Armstrong. Summary of Skatteforvaltningen (the Danish Customs and Tax Administration) v Solo Capital Partners LLP & Ors [2023] UKSC 40 under Statutory Interpretation – Revenue Rule.