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

Mr Klar did not, however, understand that statements to the effect of the representations alleged by SKAT, or any of them, would be made to SKAT. He considered that CANs indicated that the clients to whom they were addressed had been the ‘beneficial owners’ (as he understood that notion) of the shares referenced prior to the ex-date. In other words, he thought they stated only that the clients had purchased (i.e. contracted to acquire) shares prior to the ex-date. That is not the tax ownership representation alleged by SKAT. SKAT submitted that Mr Klar “would have appreciated that a representation as to beneficial ownership of shares in the context of a WHT Application implied a further representation that the shares – and therefore the dividends on those shares – were owned by the [client] for Danish tax purposes.” I do not agree. The submission betrayed the confusion of thought that infected SKAT’s claim that the representations it alleged were made. The documents in fact said nothing about the Danish tax status or consequences of the information provided. If SKAT was looking only to pay if certain strict requirements of Danish tax law were satisfied, that would not mean that statements not otherwise made by the tax reclaim documents were somehow implied, let alone that Mr Klar would have realised as much. I have no hesitation in finding that Mr Klar did not in fact understand that there was any such implication.

Mr Klar thought that CANs indicated that the client had been entitled to the gross dividend amount stated, but had received only the net amount stated because the ‘tax’ amount had been deducted from the gross amount. That says nothing about the basis of the supposed gross entitlement; and in my judgment Mr Klar’s thinking in that regard was confused. What matters, however, is that I am sure he did not understand the CANs to be making any statement, or implying anything, about the Danish tax treatment of the contractual entitlement he thought they reflected. He understood them to be reporting the crediting of ‘market claims’ (as he would have used that term), and that whether such claims amounted to dividends under Danish tax law was a question of Danish tax law, but he did not think that meant that CANs were impliedly making statements about the application of Danish tax law to the transactions to which they related. In short, Mr Klar did not understand at the time that anything essentially similar to the dividend entitlement representation or the dividend payment representation, as alleged by SKAT, would be or was being made to SKAT.

As regards the tax representation, Mr Klar appreciated at the time that only the Danish company would have made any payment to SKAT in respect of the 27% tax on the dividend declared referenced in a CAN. That is the essence of a withholding tax system. Allied to his mistaken but genuinely held view that there could be tax refund entitlements in excess of the tax collected, Mr Klar did not think that the references in a CAN to ‘tax’ or ‘tax amount’ connected the payment made to the client, as reported by the CAN, and the withholding of tax by the Danish company, in the sense conveyed by the tax representation alleged by SKAT.

This is in substance the same conclusion as I reached in relation to the DWF Ds, above. There was a withholding tax rate of 27% applicable to the Danish dividends referenced in CANs. Its existence explained why the amount referable to those dividends that was paid to the clients to whom CANs were addressed was in the amount of the net dividend, i.e. the declared dividend less an amount equal to a tax deduction at that withholding rate. But that did not mean that the CANs were reporting the passing on of a payment in that net amount coming up a custody chain from the Danish company, via VPS, rather than a payment simply under contract calculated in that way. Contrary to SKAT’s argument, therefore, it is credible that Mr Klar may have thought, as he said he did at the time, that in identifying a ‘Tax amount’ by reference to a stated ‘Withholding rate’ of 27%, and upon that basis calculating a ‘Net dividend’ amount and a ‘Due payment amount’ by deducting that ‘Tax amount’ from the ‘Gross dividend’, Salgado CANs were not intended to convey to SKAT that the Danish company had withheld tax from a payment made to the client.