While disputes in relation to tax have become a prominent feature of
commercial and investment treaty arbitration in recent years, the resolution
through arbitration of state-to-state disputes arising under international tax
treaties is an emerging trend.
Following last year's 'resource nationalism' trend,
we continue to see more and more disputes between
foreign investors and host states arising in relation
to taxation, as states around the world seek to
maximise fiscal returns through individual tax
measures or general changes to their fiscal regime.
Such disputes are particularly prevalent in the
extractive sectors (oil and gas, and mining), but fiscal
measures are also being challenged in numerous
other contexts. These cases concern matters as
wide-ranging as retroactive profits taxes, corporation
tax, VAT, capital gains tax, transfer pricing, tax
stabilisation mechanisms, taxation of income trusts,
tax procedures, tax audits and investigations or the
removal of tax incentives. They may give rise both to
commercial arbitrations in respect of disputed
contractual tax obligations and to investor-state
arbitrations, as may arise under bilateral or
multilateral investment treaties (BITs and MITs).
As well as potentially constituting unfair or
discriminatory treatment in violation of a relevant
investment treaty, some taxation measures have
been held by tribunals to amount to an
expropriation of the investment. Importantly, the
recent prevalence of investment arbitration to
resolve such international tax disputes can be
explained by the ability for qualifying investors
under investment treaties directly to access
international arbitration against a host state.
By contrast to international investment treaties,
international tax treaties have historically offered
relatively limited opportunity to investors, as
taxpayers, to vindicate claims or concerns about
states' tax decisions. Disputes under international
tax treaties typically concern the allocation between
states of taxation rights over a particular source of
income or profit, and the avoidance thereby of
double taxation on multinational companies.
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tax disputes: what next?