CL-2018-000297, CL-2018-000404, CL-2018-000590, - [2025] EWHC 2364 (Comm)

This case concerned exclusively the taxation of dividends on shares in Danish listed companies. Such shares existed at all material times as a legal construct, in dematerialised and fungible form. Everything I say refers only to such shares and such companies, during the period of interest in the case (2012-2015).

As I explained and found in SKAT (Validity Issues) [2023] EWHC 590 (Comm), Danish dividend tax was 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, on a withholding tax (‘WHT’) basis. Subject to exceptions that are not relevant to this judgment, Danish companies were obliged to pay to SKAT 27% of the dividends they declared and only the balance to the Danish Central Securities Depository for distribution. The Danish Central Securities Depository was VP Securities (‘VPS’).

The payment by a Danish company to SKAT of 27% of its declared dividend (or possibly just the company’s obligation to pay SKAT) discharged the Danish dividend tax liability of those liable to such tax on that dividend. 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 rate below 27%. For example, tax-exempt US pension funds (‘USPFs’) were entitled under the Denmark-US DTT not to be taxed on Danish dividends (so long as they were the beneficial owner, for the purpose of the DTT, of the dividend); and tax-exempt Labuan corporations (‘LabCos’) were entitled under the Denmark-Malaysia DTT not to be taxed on Danish dividends (with no express beneficial ownership condition).

A beneficial ownership condition such as was explicit in the Denmark-US DTT was an additional requirement for relief from Danish dividend tax. In Danish tax law, it did not create an entitlement to relief in a party that had not been taxed by Denmark, but it could mean that, for example, a USPF which had been taxed by Denmark was not entitled to relief because it had not been the beneficial owner, in the sense used by the DTT, of the dividend on which it had been taxed. SKAT did not pursue at trial any claim that any of the tax refund claims impugned in these proceedings was a bad claim because the entity on behalf of which the claim was submitted, though entitled to and taxed on a Danish dividend, was not the beneficial owner in the relevant sense. Rather, SKAT’s case was always that the entity on behalf of which a tax refund claim was submitted was not entitled to, or taxed on, any Danish dividend in the first place.

It is possible, but this was not explored fully at trial, that this approach of Danish law, providing an entitlement to a tax refund only where the beneficial owner of the dividend, in the sense used in DTTs, was also the party treated by Danish tax law as liable to tax on that dividend, did not properly discharge Denmark’s treaty obligations. That possibility arises because it may be the Treaty obligation was not an obligation not to tax beneficial owners of dividends, if they qualified for a tax-favoured status recognised by the DTT, but an obligation not to tax dividends, if their beneficial owners so qualified. It is not necessary to make any definite finding about that, nor am I in any position to do so; it arises from my finding in SKAT (Validity Issues) that DTT beneficial ownership of a dividend, and tax law share ownership under Danish law, were cumulative requirements of entitlement to a tax refund in Denmark, and I find, below, that SKAT was not at the time operating its tax refund claim process on that basis.

In any event, the beneficial ownership condition in DTTs is part of the context for the standard form by which SKAT required tax refund claims to be made. It is therefore relevant when construing that form for the purpose of SKAT’s allegation that misrepresentations were made to it. The same form was specified by SKAT for all tax domiciles with which I am concerned. The form current in the period I am considering required the applicant to identify themselves either as, or as acting on behalf of, the “beneficial owner”, without further explanation, and without reference to whether any such concept was mentioned expressly in the pertinent DTT. SKAT’s approach was that the beneficial ownership requirement went without saying, albeit sometimes it was made explicit in the DTT. Where I refer to ‘beneficial owner’, I shall be referring to that concept as used in, or as may be implicit in, a DTT.

Each of the tax refund claims made to SKAT with which I am concerned was made by an agent on behalf of an entity which had been inter alia the buyer under an equity trade on cum-ex terms in respect of Danish shares, i.e. an equity purchase traded on or before a dividend declaration date for settlement after the record date for that dividend.

In SKAT (Validity Issues), I found that any entitlement to a Danish dividend tax refund from SKAT, based on a DTT, was not a matter of unjust enrichment with a claim against SKAT on that basis, but a statutory right under Danish tax law, arising (after 1 July 2012) under s.69B(1) of the Danish Withholding Tax Act, which 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. …”