Vol 11 (2014) - Issue 1

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The Revenue Rule and Cooperation under the Model Law: An Australian Perspective

Introduction
The activities of individual and entities carrying out transactions on a global basis invariably expose them to taxation. Where transactions are 'one-off' or irregular in pattern, the incidence of taxation may be limited to the consequences of those transactions only and whether they attract levies, charges, duties or other forms of tax. Where the scale and frequency of transactions increase, traditional views of jurisdiction predicated on the locus of a company’s incorporation or domicile of an individual may even cede their place in many legal systems to a more sensitive test based on where business decisions are made or substantial activity is carried out so as to render otherwise 'foreign' companies eligible for treatment as if they were 'domestic' ones. In either case, where those entities or individuals become insolvent, the issue of the treatment of tax claims becomes a thorny one. The reason is that, at common law, such claims, also called 'revenue claims', have been commonly denied recognition and/ or effect, whether in insolvency or otherwise. That has meant that tax authorities have not been able to rely, even where they obtain judgments from competent courts within their own jurisdiction, on the courts of others to enforce those judgments against debtors. Such judgments have also been commonly excluded from the ambit of treaties and legislation on the recognition and enforcement of foreign judgments. The recovery of tax and mutual assistance in revenue matters has depended, therefore, on the entry into double taxation agreements or treaties, a process that is still incremental in nature and painfully slow in covering the world with a net of mutual assistance texts. The fundamental reason for the refusal to assist the taxation authorities of other states comes from the view taken by the courts, for public policy reasons, that to enforce the judgments of foreign revenue authorities, given that these bodies are regarded as emanations of a foreign state, would be tantamount to enforcing the orders of that foreign state. This is especially significant given that revenue laws were, and still are, commonly regarded as falling within the penal and coercive elements of state authority.