Cross‐border insolvency cooperation and the treatment of foreign tax claims

Foreign tax claims constitute a distinctive category of claims that frequently arise in cross‐border insolvency cases. However, the issue of whether to recognise foreign tax claims is highly controversial, as many countries exclude foreign tax claims in insolvency proceedings based on the revenue rule. A comparative analysis of the UNCITRAL Model Law, the European Union and the United States indicates that the traditional discrimination against foreign tax claims under insolvency law is gradually abating. After fully considering tax sovereignty and the collective objectives of cross‐border insolvency, this article argues that the revenue rule is not a bar to the recognition of foreign tax claims, and recognition may enhance both the efficiency and predictability of insolvency proceedings in the home country. Recognition requires determining the choice of law for the existence, amount and priority of foreign tax claims. The ‘public policy exception’ has left an ‘escape hatch’ for courts to refuse claims, but the case law suggests that its application should be restricted to exceptional circumstances. In light of these findings, this article proposes a legal framework for recognising foreign tax claims through cross‐border agreements, domestic procedural rules and rules governing tax authorities' participation.