High Court Dismisses Claim By Danish Tax Authority Seeking Recovery Of £1.4 Billion Of Dividend Withholding Tax Refund Paid Under Invalid Claims From Cum-ex Trading

The High Court found that the claim failed because the tax authority did not discharge its evidential burden to establish that the corporate entities and individuals involved had made the alleged representations which misled/induced it into paying the tax refund: Skatteforvaltningen (the Danish Customs and Tax Administration) v Solo Capital Partners LLP and others [2025] EWHC 2364 (Comm).

Fundamentally, the court found that the controls for assessing and paying dividend tax refund claims used by the tax authority were "so flimsy as to be almost non-existent" and that those lax controls were, in reality, the cause of the payouts (rather than the tax authority's reliance on any alleged misrepresentations).

The decision will be of interest to financial institutions for its detailed analysis of how traditional tort concepts apply to large-scale, automated frauds. It exposes a fundamental tension between legal doctrines that presuppose interpersonal communication and the operational realities of modern financial and tax administration systems, which increasingly function without human intervention.

In particular, the decision underscores that the tort of deceit requires that a representation be made to another party and it be relied upon. For tax authorities or financial institutions seeking to recover losses arising from automated or algorithmic frauds, based on a deceit claim, that is a significant limitation.

The judgment also clarifies that causation through system design is not the same as reliance through belief. The court distinguished between a tax authority's system being exploited and a tax authority being deceived. In the present case, the tax authority's systems paid out because they were programmed to do so upon receipt of formally correct documentation, not because any official accepted the truth of the statements made in the documentation. That evidential distinction was decisive. The ruling is likely to influence future cases where digital processes of AI systems execute financial or administrative decisions: unless human reliance can be demonstrated (through design of the system or in fact), deceit cannot be made out, however egregious the underlying conduct.

We consider the High Court's decision in more detail below. We note that the tax authority has applied to the Court of Appeal for permission to appeal the High Court's decision.

Background

Between August 2012 and July 2015, the Danish national tax authority, Skatteforvaltningen (SKAT), accepted and paid 4,710 Danish dividend tax refund claims for £1.4 billion. Each tax refund claim was supported by documents including a tax agent's letter, a completed tax reclaim form and a credit advice note (CAN). Each of the tax refund claims followed a series of what purported to be share trades on cum-ex terms and derivatives relating to shares in one of the leading Danish companies making up the OMX Copenhagen 20 (C20) Index.

At the highest level, a share is traded on cum-ex terms if it is entered into on or before a dividend declaration date (cum dividend) for settlement after the record date for that dividend (ex dividend). At all relevant times, dividend payments from Danish companies were subject to 27% withholding tax (WHT) which they were obliged to pay to SKAT on the dividends they declared. Certain double taxation treaties (DTTs) entered into by Denmark and various jurisdictions provided for certain legal persons domiciled in that jurisdiction not to be taxed on Danish dividends, or not to be taxed at a rate exceeding some rate below 27%. Recipients of the net dividends who satisfied the requirements under the relevant DTT to receive gross dividends (or to pay tax at a rate lower than 27%) could therefore make a refund claim to SKAT for the WHT paid to SKAT by the Danish companies on those dividends.

In 2015, following tip-offs from HM Revenue & Customs and others, SKAT became aware of the scale and the nature of the refund claims being made. SKAT suspended further payments and began investigations. In 2018, SKAT commenced civil proceedings in England (and other jurisdictions), seeking restitution of the sums paid and damages for deceit, alleging that it was the victim of fraud and of a conspiracy to defraud it involving many individuals and corporate entities based around the world. These included various individuals and entities associated with a UK-regulated brokerage firm, Solo Capital Partners LLP (Solo), (together, the defendants). SKAT alleged that Solo acted as a central facilitator in the trading scheme, arranging trades and documentation to create the appearance of share ownership and dividend payments which never occurred. SKAT contended that these transactions were designed to facilitate WHT refund claims which the defendants knew and intended would result in false statements being made to SKAT.

Decision

The High Court found in favour of the defendants and dismissed SKAT's claim.

Applying the principles of Danish tax law that were determined by the High Court in the earlier validity trial (Skatteforvaltningen v Solo Capital Partners LLP and others [2013] EWHC 590 (Comm)), the High Court found that none of the 4,710 tax refund claims in issue was a valid claim. In essence, this was because the seller of Danish shares under each of the cum/ex trades did not own the shares which it agreed to sell, which meant that the buyer could not regarded as having acquired any shares which carried an entitlement to a dividend and accordingly would not have suffered any WHT. The High Court described the settlement of the cum/ex trades under the relevant trading models as involving a "share-less settlement loop", under which the seller's obligation to deliver shares to the buyer was satisfied by way of net settlement of a right to receive shares which were indirectly borrowed from the buyer on the same day; as such, none of the parties needed to own any shares in the Danish issuer companies which paid dividends, and the resulting tax refund claims made by the buyer under each of the cum/ex trades sought the repayment of WHT which had not in fact been withheld by the Danish issuers.

The central issue in SKAT's claim was whether SKAT was induced to pay the invalid tax refund claims by fraudulent misrepresentations made to it by the defendants. The court approached this issue in two key stages, asking itself:

1. Whether any of the alleged representations had been made by the defendants to SKAT; and
2. Whether SKAT relied upon any such representations when authorising the refund payments.

The alleged representations

SKAT's case on deceit was that, given the contents of the supporting tax reclaim documents, each refund application it received contained a single, composite, part-express and part-implied representation as to a set of material facts that:

• the applicant was the beneficial owner of shares in Danish companies;
• those shares had been held across the relevant dividend record date;
• a dividend had been declared and paid subject to Danish WHT; and
• the WHT had been duly suffered by the applicant and was therefore refundable under the relevant DTT.

The court found that while the completed forms and CANs contained factual statements, none of the representations alleged by SKAT was stated in express or implied terms in the documents. Similarly, the information contained in the forms or CANs did not equate to the factual representations that SKAT alleged. The court rejected SKAT's argument that it would reasonably be expected to be looking only to pay a WHT refund where there was an entitlement to be paid, and therefore the representations in the tax reclaim documents should reasonably be taken to have conveyed the case for an entitlement to a refund. The court called this a "baldly asserted conclusion for which no evidence was cited" and, in any event, it would mean that every refund application necessarily carried a representation of entitlement.

Further, the court rejected SKAT's contention that the making of a claim for a WHT refund was a representation in itself, basing its reasoning on the following factors:

• The form used to claim a WHT refund was made to a public tax authority which would decide for itself what information or evidence it required and on what basis it would pay. It was not a negotiation, and the form did not require the applicant (or its tax agent) to certify entitlement or belief in entitlement to a WHT refund. Accordingly, submitting the form did not amount to a representation to SKAT that the client was (or believed itself to be) entitled to a WHT refund.
• There was no express statement of entitlement or statement as to the truth of the statement contained in the form or CAN. None of SKAT's pleaded representations were stated in the form or the CAN accompanying it. The court rejected SKAT's submission that a reasonable tax authority would treat a claim as implicitly asserting that the legal requirements were met: "I claim a Danish dividend tax refund" did not translate to or imply "I hereby state to you that the requirements of Danish tax law... are satisfied".
• In this particular case – presentations to a national tax authority which determines its own evidential requirements – asserting a right did not amount to a statement such as "our named client is entitled to a tax refund"; SKAT neither asked for nor received any such statement and did not plead that one was made.

Reliance

The court went on to highlight that even if a representation could somehow be identified, it did not think that SKAT could prove that it had relied on the representation.

This issue was dealt with in two stages. First, the court addressed SKAT's submission that if the defendants had made the alleged representations, SKAT was entitled to rely on the ordinary presumption of inducement applicable in deceit. Second, it examined whether on the evidence, SKAT could prove actual reliance in circumstances where its refund systems essentially operated automatically.

Presumption of inducement

The court accepted the orthodox principle that where a representor makes a material false representation intended to induce a representee to act, the law presumes that the representee was in fact induced to act on it (citing Farol Holdings Ltd v Clydesdale Bank Ltd [2024] EWHC 593 (Ch)). That court also acknowledged that this presumption is a powerful one and very difficult to rebut (citing Zurich Insurance Co plc v Hayward [2016] UK SC 48 and Ross RiverLtd v Cambridge City Football Club Ltd [2007] EWHC 2115 (Ch)).

However, the court held that in the present case this presumption was decisively rebutted on the evidence. This was because the alleged representations, even if made, in fact had no influence on how a tax refund decision was made.

Actual reliance

SKAT advanced three alternative cases on actual reliance. All of these were based on the understanding or action of Mr Nielsen, who was the sole SKAT employee with responsibility for the processing of the disputed refund claims.

The court rejected SKAT's first two alternative cases where it argued that Mr Nielsen was aware of and relied on the alleged representations consciously or, that he relied on them subconsciously. The court found that Mr Nielsen's job was mechanistic and unthinking, and therefore he did not give thought to what the tax reclaim documents did or did not communicate. On the evidence, SKAT's refund system processed applications automatically without any human officer examining the truth of the statements contained in the documents, even though Mr Nielsen physically processed the tax reclaim forms. The court said that Mr Nielsen's job was "a clerical task in a bookkeeping department whose functions and responsibilities did not extend to deciding, or even knowing, the criteria upon which SKAT considered that tax refund claims should be paid, or assessing whether those criteria were met, claim by claim, or at all". The payments were released once the required data fields had been completed and certain electronic validations satisfied, not when it had been established that the factual assertions were true. This evidence was fatal to SKAT's case. The court concluded that Mr Neilsen did not rely on any of the alleged representations and therefore neither did SKAT.

SKAT's third and final case on reliance was based on the concept of "systemic reliance". This is where case law has recognised the possibility that mechanistic or automatic reliance may be sufficient for there to be reliance without thought being applied by any human mind to what is or is not being conveyed by the words and/or conduct giving rise to the representations in question (see for example Renault Ltd v Fleetpro Technical Services [2007] EWHC 2541 (QB)).

The court highlighted that whilst it was possible that an output generated by the routine operation of a system which produced such outputs in response to inputs obtained from another may properly be held to have been induced by a representation by that other, the system needed to be designed to deliver that output from those inputs "because the view was taken that the provider of the inputs would make that representation by providing them". In that case, the system design could be seen as anticipatory reliance on representations that would be made, which was completed to create an individual instance of actual reliance when a particular application was routinely processed in that way.

In addition, the court said that if documents required to be submitted for a payment claim would necessarily make a representation material to a decision whether to pay the claim, and the claims were processed more or less unthinkingly through some automated system, it would be no more than an orthodox application of the presumption of inducement in that particular case to say that the representation was likely to have induced the payment.

The court also rejected the defendants' argument that "systemic reliance" was confined to machine processing. It said that it could also apply where the process was not automated but was a mechanistic clerical exercise that did not require the person checking to apply their mind to the content of the documents.

In the absence of any evidence adduced by SKAT on the design of the tax reclaim scheme or as to the information it was intended or thought that the tax reclaim forms or supporting documents would convey to it, the court found that:

• SKAT would reasonably have appreciated that what it required and received under the tax reclaim scheme did not give it information that, even if accurate, established entitlement. This meant that the design of the system itself was not capable of giving rise to anticipatory reliance.
• On SKAT's argument that it adopted a general trust-based approach, i.e. by believing that taxpayers or those claiming on their behalf, would "do the right thing" or by trusting the applicants for the refund "as verified by the banks or institutions that had provided the dividend advice", this was not the case on the evidence. The tax refund scheme did not call for, and SKAT routinely did not receive, any confirmation from a bank or other financial institution of information that, if accurate, would establish any tax refund entitlement.
• Even if SKAT's approach was to assume that an applicant was entitled to a refund because otherwise they would not be putting in a claim, that might have assisted if SKAT's claim was of reliance on a representation as to the applicant's entitlement. However, SKAT did not allege such a representation.
• There were fundamental weaknesses in SKAT's tax reclaim system which meant that it could be (and was) exploited at great cost to SKAT. However, that did not change the fact that, on the evidence, there was no need for any of the representations alleged by SKAT to be made for it to pay out on the tax reclaims. While it was true that SKAT's losses were caused by the submission of false data, causation in deceit requires an inducement founded on trust or belief in the truth of a representation. Here, the payments were made because the system was programmed to do so once the forms were complete, not because SKAT (or anyone within it) believed the claims to be valid.

As a result, SKAT failed to establish reliance.

Accordingly, the court dismissed SKAT's claim. Although the court acknowledged the gravity of the alleged fraud and SKAT's loss, it held that English law did not provide a remedy for claims of deceit in the absence of the two key elements that were found missing.

Note: In November 2025, the High Court refused SKAT's application for permission to appeal. SKAT has subsequently applied to the Court of Appeal for permission to appeal.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.