Investor-State Disputes: The Interface Between Treaty-Based International Investment Protection and Fiscal Sovereignty

Abstract

Taxation of foreign investment is an important part of the interaction between foreign investors and host states (and to some extent, home states) in the international investment process. While every foreign investor accepts that tax is the price to pay to host states for being allowed to operate in their territory, governments view tax not only as a means of raising revenue but also as a tool for regulating foreign investment. However, sometimes that regulatory authority might be exercised in a manner detrimental to the interests of the foreign investor, either by undermining the economic function of its investment or rendering it uncompetitive vis-à-vis other investors, especially domestic investors. Thus, like all other regulatory instruments, taxation might be used by a host state to squeeze a foreign investor out of its property rights.