Taxation is gaining a more important role in treaty based investment protection. The question is not only whether the levy and collection of tax can breach standards of protection of international law, but also how taxation should be taken into account when determining the damage incurred and compensation to be awarded. Based on various arbitral awards the conclusion is that due to the high burden of proof, foreign investors will only in extreme cases be able to prove that the levy and tax collection by the host state is in breach of one or more standards of protection. In case of a breach of an investment treaty, taxation should be taken into account in determining the amount of damage and the amount of compensation. This not only concerns the amount of tax that would have been due if no breach had occurred, but also the host state and home state taxation on the compensation awarded. If the intention of an award is '... to wipe out all the consequences of the illegal act and to re-establish the situation, which would, in all probability, have existed if that act had not been committed', there is certainly room for improvement with respect to taxation.
Intertax