Skatteforvaltningen v Solo Capital Partners LLP & Ors

A valid Danish withholding-tax refund claim required the applicant to have been a shareholder for tax purposes when the dividend right accrued, the Danish company to have withheld tax, and the withholding to exceed the amount permitted by an applicable double-taxation treaty. For listed companies, the relevant time was the close of trading on the dividend declaration date. Danish tax law recognised a contract-accruals rule, but a sale contract did not by itself make the buyer a shareholder where the seller had no shares, or transferable right to shares, at the relevant time. The rule could not create aggregate shareholdings exceeding the issued share capital. Subsequent failure to transfer shares could unravel the tax consequences retrospectively.

The Danish Customs and Tax Administration brought consolidated claims against numerous defendants concerning alleged invalid claims for refunds of Danish dividend withholding tax generated by cum-ex trading structures. This trial determined foundational questions of Danish tax and securities law before the proposed main trial.

The central issues were the requirements of a valid refund claim under section 69B(1) of the Danish Withholding Tax Act, the meaning of receipt of a dividend, the effect of share contracts, stock lending, short selling and net settlement, and whether administrative or market practice altered the statutory requirements.

1. Refund requirements. A valid claim under section 69B(1) of the Danish Withholding Tax Act required the applicant to be liable to Danish dividend tax, to have received a dividend in the relevant tax-law sense, to have had tax withheld under section 65, and to have suffered withholding exceeding the amount permitted by an applicable double-taxation treaty (paras [295]-[307]).
2. Accrual of dividend rights. For Danish listed companies, dividend rights accrued at the close of trading on the dividend declaration date. The tax liability therefore attached to the shareholders for tax purposes at that time, subject to the contract-accruals rule (paras [179], [188]-[191], [297]-[299]).
3. Contract-accruals rule. A final and binding share contract could cause the buyer to be treated as the shareholder for tax purposes before physical delivery. The contract had to relate to a shareholding which the seller, directly or through a valid contractual chain, was then able to transfer. A seller with no shares or transferable right to shares could not create a shareholder merely by contracting to sell (paras [206]-[208], [241]-[252], [309]-[313]).
4. Limits of the rule. Danish tax law could not recognise shareholdings or dividend entitlements exceeding 100% of the issued share capital. A contract which was never physically performed, was replaced by cash or net settlement, or was terminated for non-performance, did not generate the proposed dividend-tax consequences; those consequences could be reversed ex tunc (paras [225]-[229], [272]-[281]).
5. Stock loans. Where shares were held under a stock loan, the lender could remain the shareholder for dividend-tax purposes, subject to the effect of a subsequent sale and transfer by the borrower. The court accepted that the lender was normally liable on the borrowed holding, while recognising uncertainty in Danish authority (paras [199]-[205]).
6. Market and administrative practice. Administrative practice could not alter statutory refund requirements. Market practice was an interpretive aid only where legislation was unclear and did not displace the findings on the contract-accruals rule. The Short Selling Regulation addressed the lawfulness of short selling, not when a buyer became a shareholder for Danish tax purposes (paras [97]-[105], [129]-[131]).
7. Disposition. The court answered the Validity Issues in the Appendix. In particular, a buyer from a seller lacking shares or a transferable right to shares was not a shareholder for tax purposes, had no Danish dividend-tax liability, and could not make a valid refund claim under section 69B(1), whatever relief an applicable treaty might otherwise provide (paras [310]-[314]).

Not an appeal. The judgment determined preliminary validity issues in consolidated first-instance proceedings, following earlier case-management and Revenue Rule decisions described at paragraph [12].