Tax Carve-Outs, OECD Pillar Two, and Investment Treaty Reform [pre-publication] - European Investment Law and Arbitration Review View Tax Carve-Outs, OECD Pillar Two, and Investment Treaty Reform [pre-publication] by - European Investment Law and Arbitration Review Tax Carve-Outs, OECD Pillar Two, and Investment Treaty Reform [pre-publication] 11 2 [pre-publication]

Most international investment agreements (IIAs) in force predate coordinated global minimum taxation. Their treatment of tax measures ranges from silence or narrow carve-outs to clauses involving competent-authority referral and tax treaty primacy. This article examines how these architectures interact with the OECD/G20 Pillar Two framework, particularly Qualified Domestic Minimum Top-up Taxes (QDMTTs), the Undertaxed Profits Rule (UTPR) and redesigned tax incentives. It argues that Pillar Two is unlikely to produce mass investor-state litigation. The more plausible risk is structural, selective and potentially high-value. Legacy treaties may provide bargaining leverage where coordinated tax measures intersect with stabilization clauses, specific fiscal commitments or asymmetric burdens. The Energy Charter Treaty (ECT) serves as a diagnostic legacy instrument, while CETA, USMCA, CPTPP and recent treaty practice provide reform benchmarks. The article develops a functional taxonomy of five tax carve-out models and tests each against claim pathways under fair and equitable treatment, nondiscrimination and expropriation standards. Particular attention is given to the QDMTT as the most defensible implementation measure, the UTPR’s litigation-sensitive design, pre-existing incentives and the collateral-benefit paradox arising when arbitral relief changes Global AntiBase Erosion (GloBE) outcomes. It concludes that effective reform requires clearer carve-outs, investor safeguards, competent-authority coordination and integration between tax administrations and investment treaty negotiators.

European Investment Law and Arbitration Review