Issues and challenges with applying investment agreements to tax matters in the context of India’s experience

Abstract

ABSTRACT The growing trend in tax-related disputes pursued under the alternative legal mechanism of investment treaty arbitration is proving problematic. Since the taxpayer can raise claims on sovereign, a right not afforded in domestic or international tax law of many developing countries. This paper brings out more important and under-explored issues with the application of investment law to tax matters – the standards of the former are vague, outdated and applied disproportionately to the State. This creates a tension, especially when outdated standards under the customary international law are applied to matters of international tax law. This is particularly important in the light of rapidly evolving norms relating to tax avoidance. The paper takes the Indian case of retroactive tax legislation to demonstrate how tax policy may be constrained by the rights afforded to the foreign investor that are superior to those guaranteed under international tax and domestic law. Further, the paper reflects on whether the exclusion of tax-related disputes explicitly from investment agreements may not be enough.