Recognizing Foreign Tax Judgments: An Argument for the Revocation of the Revenue Rule

I. INTRODUCTION Litigants who have obtained a judgment from a foreign court, for the most part, have little trouble convincing courts in the United States to recognize and enforce that judgment.(1) the United States is not a member of an international convention mandating the recognition of foreign judgments,(2) such judgments are usually recognized under the doctrine of international comity.(3) Under either the applicable state statute(4) or common law,(5) foreign judgments are presumptively valid and enforceable.(6) It is the burden of the party opposing enforcement to show an acceptable reason for not recognizing or enforcing a judgment.(7) The case is completely different when the party seeking enforcement is a foreign nation,(8) and the judgment one of tax obligations. Under the the courts of the United States are under no obligation to recognize or enforce a foreign tax judgment.(9) This rule is derived from Eighteenth Century cases wherein Lord Mansfield stated that no nation recognizes the revenue laws of another.(10) The revenue rule, however, is an archaic vestige of English common law.(11) The original reasoning upon which the rule is based is flawed because Lord Mansfield's statement had no bearing on the facts presented by the cases.(12) Indeed, the abolition of the revenue rule would be consistent with fundamental principles of American law and government.(13) Further, such an abolition would aid U.S. tax officials in collecting revenue from delinquent tax payers who flee overseas to escape U.S. jurisdiction.(14) This Article examines the revenue rule in American jurisprudence. Part I traces the development of the revenue rule in the United States. Part II examines the origins of the revenue rule in English common law and demonstrates the flaws in its inception. Part III shows the defects in the rationale behind the revenue rule. Part IV argues that the abolition of the revenue rule would be consistent with the principle that governmental authority derives from the consent of the governed. Part V explains how the United States could benefit from the abolition of the revenue rule. II. THE REVENUE RULE IN AMERICAN JURISPRUDENCE The doctrine that foreign tax judgments should not be recognized was injected into American jurisprudence by Her Majesty the Queen ex rel. British Columbia v. Gilbertson.(15) There, citizens of Oregon performed logging operations in British Columbia, a province of Western Canada.(16) The defendants were assessed tax on their income from logging by the government of British Columbia.(17) The government filed a certificate of assessment with the Supreme Court of British Columbia, giving the assessment the same effect as a judgment.(18) British Columbia then filed suit in the federal courts in Oregon for the recognition and enforcement of the judgment.(19) The U.S. District Court declined enforcement, citing the revenue rule.(20) The U.S. Court of Appeals for the Ninth Circuit affirmed the ruling of the District Court.(21) First, the court traced the origin of the revenue rule to two Eighteenth Century English cases decided by Lord Mansfield.(22) In Holman v. Johnson, Mansfield stated, [N]o country ever takes notice of the revenue laws of another.(23) Lord Mansfield reiterated this pronouncement in Planche v. Fletcher, stating, One nation does not take notice of the revenue laws of another.(24) admitting that these statements amounted to nothing more than dictum in the cases cited, the Ninth Circuit nonetheless stated that the doctrine had become well recognized.(25) In support of the revenue rule, the Ninth Circuit quoted the concurring opinion of Judge Learned Hand in Moore v. Mitchell:(26) While the origin of the exception in the case of penal liabilities does not appear in the books, a sound basis for it exists, in my judgment, which includes liabilities for taxes as well. …

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