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Abstract

The recent decade has witnessed an increase of cases in which foreign investors have challenged host states’ taxation measures in international investment arbitrations, arguing that they violated investment treaty protection standards including fair and equitable treatment (“FET”). After conducting a close examination of cases involving taxation-related claims in international investment arbitration, this article reveals that in the cases involving the host states’ taxation measures, the ability of investors to invoke FET claims is very limited, and the chances of foreign investors succeeding in protecting their investment interests through FET claims are much lower compared to other types of non-taxation-related claims. Tribunals have generally extended uneven deference toward host states’ taxation power, which renders investment treaty protection less meaningful, even insufficient, for foreign investors to protect their interests from host states’ abuse of taxation measures. In addition, due to the generic and vague features of the FET standard, different tribunals have taken a diverging approach to conduct the FET analysis which caused more confusion and uncertainty. To address this situation, this article proposes a new “Balanced Three-Fold” approach to harmonize the chaos in existing jurisprudence: for taxation-related FET analysis, first, the tribunal could assess whether there is a clear prior commitment to taxation stabilization from the host state to the investor through stabilization arrangements or other assurances or guarantees; if there is no prior commitment, then assessment can turn to substantive FET sub-standards and procedural FET sub-standards to decide whether the taxation related claims can be supported or not.

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