Observations on Taxation-Based Claims in International Investment Arbitration Does the power to Tax Involve the power to Extinguish? (2nd Prize Winner of the Essay Competition 2023)

Abstract

While taxation has been a concern for centuries, it became a universal concern with the increase in economic interaction between States. It has become yet more important with the internationalisation of investment flows. States voluntarily impose limits on their sovereignty through investment treaties to attract investors to invest in their countries. Foreign investors have arbitrated the abusive conduct of States under the guise of tax and taxation before tribunals for many years. International investment arbitration deals with the manifestation of the States’ exercise of their sovereignty within the limits of protection standards. In relation to the violation of these standards, foreign investors have succeeded in some of their claims, and failed in others. Arbitral tribunals have made case- by- case analyses for each claim. These have drawn a general picture of how state actions may cross the lines of protection standards and implicate breaches of international law. Yet, it is unclear to what extent the investment treaties that are in the process of change will affect the future attitudes of tribunals against taxation- based claims. This article will explore and unveil the crossroads of the States’ taxation powers and investment protections in investment treaties through the interpretations of investment arbitration tribunals.