Interactions between Taxation Measures and International Investment Agreements
The treatment of taxation measures in International Investment Agreements (IIAs) is of utmost significance to foreign investors as well as the host state. From the investors’ perspective, fair taxation by the host state is significant because tax measures
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Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Treatment of Taxation in Modern International Investment Agreements . . . . . . . . . . . . . . . . . . . . . . . 3 Treatment of Tax Measures in International Investment Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Taxation Measures and Expropriation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Taxation Measures and Fair and Equitable Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Interpretation of Tax Carve-Outs by Investment Tribunals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Abstract
The treatment of taxation measures in International Investment Agreements (IIAs) is of utmost significance to foreign investors as well as the host state. From the investors’ perspective, fair taxation by the host state is significant because tax measures can significantly affect the profitability of their investment. Particularly harsh tax measures, including measures taken to recover taxes, can at times have a terminal effect on the economic viability of the investments made by foreign investors. At the same time, autonomy over fiscal policies is a core aspect of a state’s sovereignty, which makes it reasonable for a state to jealously guard this autonomy from the dictates of treaties and tribunals. This contribution examines the way taxation measures are treated in modern IIAs. The contribution also details legal principles set out by international tribunals in tax-related investment disputes concerning the interaction between the challenged tax measures and select important treaty disciplines most frequently invoked in such disputes.
V. Vasudev (*) Dispute Settlement Lawyer, World Trade Organization (Present), Geneva, Switzerland e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2021 J. Chaisse et al. (eds.), Handbook of International Investment Law and Policy, https://doi.org/10.1007/978-981-13-5744-2_28-2
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V. Vasudev
Keywords
Taxation · Carve-outs · Expropriation · Fair and equitable treatment · Sovereignty · Regulatory autonomy · Arbitration tribunals
Introduction The nature of the taxation regime in various states is an important factor that commercial enterprises all around the world take into account in making decisions as to where they wish to invest.1 Countries that offer a more attractive tax environment for investors are likely to be preferred destinations for foreign investment, as such environment signals an investor-friendly regulatory regime to potential investors.2 States, however, are also interested in expanding their sources of reven
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