Denmark’s tax authority, SKAT, proved in the English courts that billions were paid out through invalid withholding tax refund claims connected to cum-ex trading. Yet the authority still lost one of the largest fraud cases ever heard in the English Commercial Court.
The outcome has major implications for tax authorities, financial institutions, and tax professionals involved in withholding tax reclaim systems. The judgment highlights a critical issue in modern tax administration: automated payment systems may process fraudulent claims without creating the legal “reliance” required to establish liability for deceit under English law.
The case, SKAT v Solo Capital Partners LLP & Others [2025] EWHC 2364 (Comm), involved claims worth approximately £1.44 billion relating to Danish dividend withholding tax refunds paid between 2012 and 2015.
Why the Case Matters
The litigation stands out for both its financial scale and its legal significance.
Proceedings involved 56 defendants, including 21 individuals and 35 corporate entities. The trial lasted 138 days, including 108 sitting days and 30 reading days, making it one of the largest Commercial Court proceedings in recent English legal history. The resulting judgment ran to 326 pages.
SKAT now faces legal costs estimated at around £400 million, separate from the £1.44 billion in disputed refunds that remain unrecovered through the English proceedings. The financial burden ultimately falls on Danish taxpayers.
The central legal paradox attracted international attention. The court accepted that the refund claims were invalid and found widespread dishonesty within the underlying trading arrangements, however, despite that, SKAT failed to establish the legal requirements for the tort of deceit.
The decision is already influencing discussions around automated fraud detection systems, tax authority governance, and civil recovery litigation across Europe.
Understanding the Cum-Ex Structure
Cum-ex trading exploited the timing of dividend payments and settlement cycles around share ownership. Under Denmark’s withholding tax regime, dividends paid to foreign investors were generally subject to a 27% withholding tax. Certain non-resident investors could reclaim part or all of that tax under applicable double tax treaties.
The problem arose when multiple parties appeared to hold entitlement to the same dividend around the dividend record date. In many cases, shares were sold short or traded in ways that created overlapping claims to ownership.
According to findings in the earlier validity trial, none of the 4,170 refund claims submitted to SKAT was valid because the sellers did not own the shares in question, the buyers therefore acquired no genuine dividend entitlement, and withholding tax had never actually been paid on the purported dividends.
The reclaim process itself was relatively simple. Claims were supported through documents such as reclaim forms, tax agent letters, and credit advice notes. SKAT’s system did not require claimants to prove beneficial ownership before refunds were processed.
Estimated losses linked to cum-ex and related cum-cum structures across Europe have reached approximately $62.9 billion, with Germany suffering the largest reported losses. Denmark’s estimated exposure is around €1.7 billion.
The Legal Issue That Decided the Case
The litigation ultimately turned on a core element of English fraud law: reliance. Under the tort of deceit, a claimant must prove five elements:
A false representation was made;
The defendant knew the statement was false or was reckless as to its truth;
The statement was intended to induce reliance;
The claimant relied on the statement;
The claimant suffered loss as a result.
SKAT argued that the defendants implicitly represented they were legally entitled to the refunds and that SKAT relied on those representations when paying the claims.
The court rejected both arguments.
Why the Court Found No Actionable Representation
One of the most important findings concerned the structure of SKAT’s own reclaim forms.
The court held that submitting a refund claim did not amount to a legal representation that all statutory conditions for repayment had been satisfied. The forms designed by SKAT did not require claimants to certify beneficial ownership or confirm that withholding tax had genuinely been incurred.
The judgment drew a distinction between requesting a refund and affirmatively representing legal entitlement to that refund. That distinction became decisive because SKAT’s own administrative framework defined the evidence required for payment. The court concluded that a claimant complying with the requested documentation process was not necessarily making an independent legal certification about entitlement.
For tax professionals, the point is significant. Claim documentation that lacks explicit declarations or certification language may weaken later fraud recovery claims.
The Failure of “Systemic Reliance”
SKAT also argued that its refund system relied on the accuracy of submitted information even if individual employees did not personally assess the claims in detail. This became known as the “systemic reliance” argument.
English law has previously accepted that automated systems can satisfy reliance requirements in fraud claims. However, the court held that the claimant must prove the system was actually designed to rely on representations of the relevant type.
That evidence was missing in SKAT’s case: the employee responsible for processing claims, Mr. Nielsen, was found to perform only a mechanical review for document completeness, he did not assess substantive legal entitlement to refunds.
The court described SKAT’s controls as “so flimsy as to be almost non-existent.” According to the judgment, the authority would likely have processed the claims regardless of whether the underlying representations were true because the system itself did not evaluate entitlement.
The ruling creates an important distinction for automated fraud litigation: a payment system being exploited is not the same as a payment system being deceived. This could affect future disputes involving payment fraud, synthetic trading schemes, automated reimbursement systems, and digital financial platforms.
Implications for Tax Authorities
The judgment exposes a structural challenge for tax administrations that process large volumes of automated repayments.
Where systems are built without substantive verification mechanisms, authorities may struggle to prove reliance in later civil fraud proceedings. The issue cannot easily be fixed during litigation because courts may focus on how the payment architecture operated at the time refunds were approved.
Tax authorities reviewing withholding tax reclaim systems may now consider:
Adding explicit claimant certifications regarding legal entitlement
Strengthening beneficial ownership verification procedures
Preserving evidence showing how systems rely on submitted representations
Pursuing alternative causes of action that do not require proof of reliance, such as unjust enrichment or conspiracy claims
The judgment does not suggest the conduct was acceptable. The court acknowledged extensive dishonesty within the broader trading arrangements. The issue was whether SKAT satisfied the technical legal requirements for deceit under English law.
What Tax Professionals Should Watch Next
Several developments could reshape the legal landscape further. SKAT has applied to the English Court of Appeal for permission to challenge the ruling. The appeal is expected to focus heavily on the scope of systemic reliance and the court’s interpretation of actionable representations within automated processing systems.
The decision may become one of the leading authorities on fraud claims involving automated systems and algorithmic payment infrastructure.
Tax professionals should also monitor the broader implications for withholding tax reclaim procedures. The judgment places significant emphasis on system architecture, evidentiary design, and internal controls. Those issues increasingly overlap with tax technology governance and financial crime compliance.
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