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Cum-Ex Saga: UK High Court Upholds Danish Government Claims in Validity Trial Conclusion — Orbitax Tax News & Alerts

On 24 March 2023, the UK High Court issued a preliminary ruling in a “Validity Trial”, awaiting the main trial, in the case brought by the Danish Tax and Customs Agency (SKAT) against Solo Capital Partners and others. SKAT has been attempting to recover EUR 1.7 billion in what it considers as unlawfully claimed and obtained refunds of Danish dividend withholding tax. Initially, the High Court rejected SKAT’s claims on the grounds that the Revenue Rule (or Dicey rule 3) barred English courts from entertaining claims involving the enforcement of a penal, revenue, or other public law of a foreign State. On appeal, however, the Court of Appeal overturned the decision and drew a distinction between claims for recovery of tax owed to a foreign State (which would fall under the Revenue Rule absent an explicit international agreement with the claimant State), and claims for the restitution of tax revenues paid out by SKAT pursuant to fraudulent claims. The Court of Appeal reasoned that the matter concerns not a tax claim by Denmark, but rather a claim to recover disbursements from tax revenues made to persons who were not taxpayers in Denmark in the first place. Consequently, and although recognizing that detailed aspects of Danish tax law will inevitably be addressed during a trial in the UK, the Court of Appeal remanded the case to the High Court for adjudication. The High Court in its judgement upheld SKAT’s position pertaining to virtually all disputed areas, including those pertaining to the taxation of dividends in Denmark, the interoperability between Danish tax, company and securities laws and market practice, and the operation of tax treaties in relation to dividends.

The Cum-Ex scandal emerged following investigative reports by European media organizations (the Cum-Ex Files) which uncovered a massive defrauding of the treasuries of multiple European countries including in particular Germany, France, Italy, Denmark and Belgium, through successive cum-ex arbitrage transactions allowing their users to reclaim multiple refunds of withholding tax.