Rule against foreign revenue enforcement

"Revenue rule" redirects here. It is not to be confused with revenue ruling.

Conflict of laws and private international law
Preliminaries
Characterisation Incidental question Renvoi Choice of law Conflict of laws in the United States Public policy doctrine Hague Conference
Definitional elements
Jurisdiction Procedure Forum non conveniens Lex causae Lex fori Forum shopping Lis alibi pendens
Connecting factors
Domicile Lex domicilii Habitual residence Nationality Lex patriae Lex loci arbitri Lex loci rei sitae Lex loci contractus Lex loci delicti commissi Lex loci actus Lex loci solutionis Lex loci protectionis Proper law Lex loci celebrationis Choice of law clause Dépeçage Forum selection clause
Substantive legal areas
Status Capacity Contract Tort Marriage Divorce Property Forced heirship Hague Trust Convention
Enforcement
Enforcement of foreign judgments Anti-suit injunctions Revenue rule

Taxation
An aspect of fiscal policy
Policies Government revenue Tax revenue Non-tax revenue Tax law Tax bracket Tax threshold Exemption Credit Deduction Tax shift Tax cut Tax holiday Tax advantage Tax incentive Tax reform Tax harmonization Tax competition Double taxation Representation Unions Medical savings account Tax, tariff and trade
Economics General Theory Price effect Excess burden Tax incidence Laffer curve Optimal tax Theory Optimal capital income taxation Distribution of Tax Tax rate Flat Progressive Regressive Proportional
Collection Revenue service Revenue stamp Tax assessment Taxable income Tax lien Tax refund Tax shield Tax residence Tax preparation Tax investigation Tax shelter Private tax collection Tax farming
Noncompliance General Tax avoidance Tax evasion Tax resistance Tax shelter Smuggling Black market Unreported employment Corporate Tax inversion Transfer mispricing Base erosion and profit shifting (BEPS) Double Irish Dutch Sandwich Single Malt CAIA/Green Jersey Locations Tax havens Corporate tax havens Offshore financial centres (OFCs) Offshore magic circle Conduit and Sink OFCs Financial centres Financial Secrecy Index Major examples Apple €13 billion fine Ireland as a tax haven Leprechaun economics Liechtenstein tax affair Luxembourg Leaks Offshore Leaks Paradise Papers Panama Papers Swiss Leaks United States as a tax haven Panama as a tax haven
Types Direct Indirect Per unit Ad valorem In rem Capital gains Carbon Consumption Dividend Ecotax Excise Fuel Georgist Gift Gross receipts Income Inheritance (estate) Land value Payroll Pigovian Property Sales Sin Single Stamp Steering Turnover Value-added (VAT) Corporate profit Excess profits Windfall profits Negative (income) Wealth
International Financial transaction tax Currency transaction tax European Union Common Consolidated Corporate Tax Base (CCCTB) Tobin tax Spahn tax Tax equalization Tax treaty Permanent establishment Transfer pricing European Union FTT Foreign revenue rule
Trade Custom Duty Tariff Import Export Tariff war Free trade Free trade zone Trade agreement ATA Carnet
Research Academic Mihir A. Desai Dhammika Dharmapala James R. Hines Jr. Ronen Palan Joel Slemrod Gabriel Zucman Advocacy groups Tax Justice Network (TJN) Institute on Taxation and Economic Policy (ITEP) Oxfam (UK) Tax Foundation (US) Tax Policy Center (US)
Religious Church tax Eight per thousand Teind Tithe Fiscus Judaicus Leibzoll Temple tax Tolerance tax Jizya Kharaj Khums Nisab Zakat
By country All Countries List of countries by tax rates Tax revenues as % of GDP Tax rates in Europe Individual Countries Albania Algeria Argentina Australia Azerbaijan Bangladesh Bhutan Brazil Bulgaria BVI Canada China Colombia Croatia Denmark Finland France Germany Greece Hong Kong Iceland India Indonesia Iran Ireland Israel Italy Japan Kazakhstan Lithuania Malta Morocco Namibia Netherlands New Zealand Norway Pakistan Palestine Peru Philippines Poland Russia Singapore South Africa Sri Lanka Sweden Switzerland Taiwan Tanzania United Kingdom United States Uruguay

The rule against foreign revenue enforcement, often abbreviated to the revenue rule, is a general legal principle that the courts of one country will not enforce the tax laws of another country. The rule is part of the conflict of laws rules developed at common law, and forms part of the act of state doctrine.

In State of Colorado v. Harbeck 133 N.E. 357, 360 (N.Y. 1921) the court referred to :

“ The ... well-settled principle of private international law which precludes one state from acting as a collector of taxes for a sister state and from enforcing its penal or revenue laws as such. The rule is universally recognized that the revenue laws of one state have no force in another. ”

The rule has been repeatedly applied in the United Kingdom, the US, Canada, Australia, Ireland, Singapore and other countries. It has also been codified into statute in various countries.

History of the rule

The earliest reported case on the rule is believed to be Attorney General v Lutwydge (1729) Bumb 280, 145 ER 674. In that case the English courts refused to enforce a bond for Scottish tobacco duties. In 1775 Lord Mansfield CJ famously pronounced in Holman v Johnson (1775) 1 Cowp 341 at 343, 98 ER 1120 at 1121 that "no country ever takes notice of the revenue laws of another." In 1779 he repeated that position in Planche v Fletcher (1779) 1 Douglas 251, 99 ER 164.

English law

Although the rule had been referred to an applied in a number of English cases from as early as 1729, the rule itself was not considered beyond doubt in England until the decision of the House of Lords in Government of India v Taylor [1955] AC 491. In that case the House of Lords unanimously upheld the Court of Appeal (who had in turn unanimously upheld the trial judge) that the liquidator of an English company could not pay out sums to a foreign Government because the tax claim was not justiciable in England.

The rule as it applies under English law is summarised in Dicey Morris & Collins at Rule 3:

“ RULE 3 - English courts have no jurisdiction to entertain an action (1) for the enforcement, either directly or indirectly, of a penal, revenue or other public law of a foreign State; or (2) founded upon an act of state. ”

In Re State of Norway's Application (No 2) [1990] 1 AC 723 the Norwegian government sought the assistance from the English courts in collecting evidence in relation to a tax claim. The respondent resisted the application on the basis that it violated the revenue rule, but the House of Lords held that assisting with the collection of evidence would not violate the rule. Lord Goff said "It is of importance to observe that that rule is limited to cases of direct or indirect enforcement in this country of the revenue laws of a foreign state. It is plain that the present case is not concerned with the direct enforcement of the revenue laws of the State of Norway. Is it concerned with their indirect enforcement? I do not think so."

In QRS 1 Aps v Frandsen [1999] 1 WLR 2169 it was held that to uphold a contractual provision between two private contracting parties for an indemnity against the payment of foreign taxes would not constitute an indirect enforcement of a foreign tax claim, and so was enforceable.

United States

The revenue rule has been repeatedly applied by courts in the United States. The rule was first applied in the United States in 1806 in Ludlow v. Van Rensselaer 1 Johns. R. 94 (N.Y. 1806).

Initially the rule was also applied to claims for taxes made by other states within the USA. In Maryland v. Turner 132 N.Y. 173, 174 (1911) the courts of New York state refused to enforce a judgment debt relating to taxes due in Maryland. In Colorado v. Harbeck 133 N.E. 357, 360 (N.Y. 1921) it was held that there was a "well-settled principle of private international law which precludes one state from acting as a collector of taxes for a sister state and from enforcing its penal or revenue laws as such. The rule is universally recognized that the revenue laws of one state have no force in another." However, in Moore v. Mitchell 30 F.2d 600, 600 (2d Cir. 1929) the U.S. Supreme Court limited the application of the rule in the interstate context.

In Milwaukee County v. M. E. White Co. 296 U.S. 268, 268 (1935) the Supreme Court was asked to consider whether revenue laws of other states should be enforced under the Full Faith and Credit Clause. The Supreme Court declined to extend the full faith and credit provision to revenue statutes themselves, but limited its ruling to enforcement of tax judgments handed down in the courts of other states.

Canada

The Supreme Court of Canada has upheld and applied the revenue rule in United States v. Harden [1963] SCR 366.

Civil law jurisdictions

Civil law (as opposed to common law) jurisdictions will not generally entertain foreign tax claims on the basis that they are public laws, and therefore cannot be enforced outside of the state or territory. In the Swedish case of Bulgariska Staten v Takvorian (NJA 1954 s.268) the court held "a state cannot use a Swedish court to collect taxes or to have other contributions made to a foreign state".

Criticism

The rule has been subjected to criticism. Professor Adrian Briggs of Oxford University has criticised it on the basis that it promotes the evasion of tax liabilities. Another commentator has called it "anachronistic and destructive". But other commentators have defended it, both as a matter of practice and principle.

Abrogation

Nations can, and do, abrogate the rule on a bilateral basis by treaty. In Ben Nevis (Holdings) Limited v HMRC [2013] EWCA Civ 578 the English courts enforced a claim for South African taxes under a bilateral treaty between the countries.

However, whilst treaties to share information relating to taxable liabilities are common, or for relief from double taxation, treaties empowering nations to enforce each other's tax law are relatively uncommon. Brenda Mallinak records that in 2006 the USA had only five such treaties, despite having a large number of international treaties for tax information exchange.