Good faith has
distinct functions in investment law that balance competing interests. It
protects investors’ legitimate expectations under investment agreements and
stabilization clauses while safeguarding host states’ right to regulate in good
faith for a legitimate public interest or purpose. This article first examines
whether amendments of the legal and tax regulatory framework by host states, as
part of the Pillar Two global policy reform, frustrates investors’ legitimate
expectations. It then assesses if such changes could still qualify as good
faith conduct by a state that is pursuing legitimate policy objectives thereby
excluding liability. Additionally, the article explores how home states’
activation of the Pillar Two mechanisms may conflict with treaties’ performance
in good faith and estoppel. Finally, the article investigates how tribunals
weigh the good faith aspect in involved parties’ behaviour when calculating
liability for damages. It assesses whether the coercive effect on host states
caused by Pillar Two mechanisms activated by home states could make them fully
or partially liable for damages. The article accentuates the increasing
relevance of good faith in current international tax policymaking in which
political and economic pressure has become a powerful tool for shaping global
rules.