IJ №1 (33) 2020
The distinction between indirect expropriation and taxation measures as derived from arbitration tribunal case-law

Abstract

Traditionally international investment agreements dealt only with the system of guarantees provided to foreign investors by the host state and contained almost no provisions on the right of states to adopt regulatory measures. With new modern investment agreements being drafted, the situation is currently undergoing changes, and the number of provisions regulating the relevant states’ rights is increasing. In this context, a question arises as to the relations between the guarantees of foreign investment protection, in particular, the protection against indirect expropriation, and the right of states to regulate the sphere of investments as one of the aspects of state sovereignty. The author discusses state regulatory measures in the sphere of taxation due to the significance and sensitivity of these measures for the host state which is determined, in particular, by the necessity to ensure recurring government revenues. The author provides the definitions of “indirect expropriation” and the “right to regulation”, as well as the criteria for distinguishing them, such as the degree of interference with the investors’ property rights, interference with the investors’ legitimate expectations and the nature of the measure. The importance of distinguishing between these concepts is due to the fact that if it is recognized that a state regulatory measure constitutes indirect expropriation, its adoption will require the payment of compensation. At the same time, the measure adopted by the state within the framework of its regulatory powers will not require the payment of such compensation. The author of the article concludes that the first criterion, (that is the determination of the degree of interference with the investors’ property rights) can be sufficient to prove the presence of indirect expropriation. As a rule, an interference with the investors’ legitimate expectations and the nature of the measure per se is not a sufficient ground to prove the ground for establishing expropriation. However, investment arbitration tribunals take these criteria into account as additional features and make their conclusion on the basis of their entirety. The article also examines the tendency to stipulate a new mechanism to settle disputes arising out of taxation measures in modern investment agreements, namely a consultation mechanism involving competent authorities of the contracting states, and the risks it may create for foreign investors.

About the author:
Irina Artamonova – L.L.M., Ph.D. Student, Faculty of Law, University of Hamburg, Hamburg, Germany

Citation: Artamonova I. (2020) Razgranichenie kosvennoy ehkspropriatsii i nalogo­vykh mer v praktike mezhdunarodnykh investitsionnykh arbitrazhey [The distinction between indirect expropriation and taxation measures as derived from arbitration tribunal case-law]. Mezhdunarodnoe pravosudie, vol.10, no.1, pp.125–135. (In Russian).

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