The Revenue Rule In Tax Law

• Published date: 19 May 2023
• Subject Matter: Litigation, Mediation & Arbitration, Tax, Trials & Appeals & Compensation, Tax Treaties, Income Tax, Tax Authorities
• Law Firm: TaxChambers LLP
• Author: Mr Vern Krishna

A country's revenue laws reflect its political sovereignty and create property rights that affect relationships. Hence, sovereign states will not enforce the revenue laws of foreign countries and domestic courts will not exercise jurisdiction beyond their national boundaries. This rule, known as the "revenue rule", is long standing in the common law.¹

A judgment based on a tax debt is normally not enforceable in a foreign jurisdiction. Thus, the Canada Revenue Agency ("CRA") cannot enforce collection against a non-resident with no assets in Canada, unless it issues a Requirement to Pay to a Canadian resident that owes or will owe money to the non-resident.²

Rationale of the Rule

The rule derives from eighteenth-century English court decisions seeking to protect British trade from the oppressiveness of foreign customs. In Boucher v. Lawson, 95 Eng. Rep. 53 (K.B. 1734) (Lord Hardwicke, C.J.), the court acknowledged that its concerns with promoting British trade led it to uphold a transaction that violated Portuguese export laws. Chief Justice Lord Hardwicke stated that to do otherwise "would cut off all benefit of such trade from this kingdom, which would be of very bad consequence to the principal and most beneficial branches of our trade." The rule is part of Canadian law, United States common law, international law, and the national law of other common law jurisdictions. The revenue rule respects sovereignty, concern for judicial role and competence, and separation of powers. Lord Denning explained the rationale in Attorney General of New Zealand v. Ortiz, [1984] A.C. 1 (H.L.) as follows:

"The class of laws which will be enforced are those laws which are an exercise by the sovereign government of its sovereign authority over property within its territory or over its subjects wherever they may be. But other laws will not be enforced. By international law every sovereign state has no sovereignty beyond its own frontiers. The courts of other countries will not allow it to go beyond the bounds. They will not enforce any of its laws which purport to exercise sovereignty beyond the limits of its authority."

See also: Judge Learned Hand's rationale for the rule:³

"[A] court will not recognize those [liabilities] arising in a foreign state if they run counter to the 'settled public policy' of its own. Thus, a scrutiny of the liability is necessarily always in reserve, and the possibility that it will be found not to accord with the policy of the domestic...