Travelers wins ruling involving limited partnership, Danish tax authority

A federal appeals court affirmed a lower court ruling in favor of a Travelers Cos. Inc. unit in a dispute involving farm liability policies and the Danish tax authority.

Travelers units Travelers Indemnity Co. and Travelers Indemnity Co. of America had filed suit in U.S. District Court in Lexington, Kentucky, to resolve issues under farm liability policies issued to Bernard Tew, Andrea Tew and Lexington, Kentucky-based Tew LP, a limited partnership that operates the Tew family farm, according to Friday’s ruling by the 6th U.S. Circuit Court of Appeals in Cincinnati in Travelers Indemnity Co. of America; Travelers Indemnity Co. v. Bernard Tew; Andrew Tew, Vincent Tew; Stephanie Tew; Tew LP.

Stephanie Tew and Vincent Tew also sought coverage under the policies as members of Tew LP.

Through family retirement plans, the Tews sought to exploit what they called a “dividend arbitrage investment opportunity,” but what Skatteforvaltningen, Denmark’s Customs and Tax Administration, called tax fraud,” the ruling said.

The ruling said the scheme involved the Tews acquiring on paper a large number of shares in Denmark companies for only a short period of time when the eligibility to receive dividends were determined. It said the Tew entities sought out tax refunds of tax withheld because of the dividends. 

While Danish companies must withhold a 27% tax on dividends, under a tax treaty between Denmark and the U.S., the tax is reimbursable to certain non-Danish shareholders, including the Tews-operated retirement entities, the ruling said. 

The Tews sought tax refunds, but SKAT contended the applications were fraudulent because the Tews did not own the shares they claimed to own, did not earn the dividends they claimed to have earned and were not entitled to the tax refunds they claimed.

SKAT filed 15 lawsuits against members of the Tew family and Tew LP seeking recovery of the improper tax refunds, the ruling said.

In their litigation against the insurers, the Tews are seeking reimbursement of costs incurred in defending five of the SKAT complaints and damages they incurred because of Travelers’ failure to help them with their defense, it said.

The district court ruled in the insurers’ favor and was affirmed by a three-judge appeals court panel in a three-page ruling. “The district court’s well-reasoned opinion correctly concludes that the damages alleged by SKAT in the five relevant claims did not constitute a loss of tangible property,” the ruling says.

“For that reason alone, the farm liability policies did not cover the tax fraud claims, nor require Travelers to defend the Tews against those claims,” the ruling said in affirming the lower court.

Attorneys in the case did not respond to requests for comment.