In Skatteforvaltningen v. Markowitz, __ F.4th ___ (2d Cir. 2026), CA2 here and GS here [to come], the panel affirms the district court’s judgment based on a jury verdict holding the defendants civilly liable to the Danish government for participating in a massive fraud using the strategy sometimes called “cum-ex”. I have previously written on variations of this fraud here. Basically, through hocus-pocus, the defendants claimed to have stock in Danish companies on their dividend date which would have meant that they would be entitled to the dividends and those dividends would require withholding at 27%. However, under the U.S.-Denmark income tax treaty, dividends paid by a Danish company to U.S “shareholders that are United States pension plans, which are exempt from [U.S.] taxation” (Slip Op. 9) may be refunded to the qualifying shareholders. Basically, the principals or agents of the taxpayers figured out (i.e., created ex nihilo) a way to claim the refunds with respect to stock they never owned and with respect to dividends they never received and thus withholding tax that was never paid in. In this civil suit, Denmark seeks to recover from the participants and beneficiaries of this fraud on its fisc. Denmark succeeded at trial and prevailed on appeal.
The underlying events are straight-forward fraud wrapped in a supposed refund claim. The principal issue on appeal is whether the suit sought liability that was subject to the so-called “revenue rule” where, in Anglo-American jurisprudence, the courts of one sovereign (here the U.S.) will not enforce another sovereign’s tax laws. (See Federal Tax Crimes Blog posts on the revenue rule here.) The panel rejects the defendants’ revenue rule argument. (Slip Op. 20-35.) The Court’s lengthy consideration of that issue is, I think, correct. As suggested above, the refund claims were simple fraud in the guise of refund claims and had nothing to do with Danish tax law. Another way of looking at it is that the transactions were an abuse of the U.S.-Denmark tax treaty which U.S. courts should not be precluded from considering and providing appropriate relief.
In any event, at trial and on appeal, the defendants conceded that they did not own the stocks and hence were not entitled to the refunds they claimed. They instead argued that they had no reason to know that their refund claims were bogus. Without that knowledge, they claimed, their claims were not fraudulent. The jury decided that they had the requisite mens rea for liability. Of course, that argument was bullshit given the red-flags involved and babies-come-in-baskets nature of their claims.
There were other arguments based on trial court evidentiary decisions and sufficiency of the evidence as to two defendants. (Slip Op. 36-61.) The issues are run of mine in criminal cases so I do not discuss them, but I do point interested readers to two discussions:
