The treatment of tax as expropriation in International investor-state arbitration

Domestic tax measures are treated by investment tribunals as a fundamental attribute of sovereignty and constitute lex specialis in relation to the general rule on expropriation under customary international law. Although both direct and indirect expropriation are possible through the imposition of tax measures, in practice such findings are rare and further restricted by joint tax vetoes and tax exclusion clauses in international investment treaties and bilateral tax treaties. This inclination in favour of host states is further confirmed by the requirement that the conduct requirements for expropriation be satisfied, although the role of conduct requirements is to differentiate between lawful and unlawful expropriation. The lex specialis character of tax measures suggests, particularly as a result of cases such as Burlington, that investment tribunals are unlikely to lower the threshold of state liability for expropriation arising from tax measures and are in fact likely to view the substantial deprivation standard very strictly and in a manner that requires a total deprivation of property.