Thoughts on the Interpretation and Desirability of Tax Carve-Outs in Investment Treaties

Abstract This article examines how international investment tribunals have understood and applied exclusions for ‘taxation’ or ‘tax measures’ from the scope of investment treaties and discusses how treaties without a carve-out have been applied to tax-related disputes. The analysis finds that tax carve-outs are a harmful inconsistency in protecting foreign investment and that awards in favour of investors in tax-related claims have concerned State action that was either excessive or entirely avoidable. Adopting tax carve-outs is not aligned with fostering transparency and adherence to international human rights norms but rather undermines the legitimacy of the international tax system.