Pillar Two, proposed
by the Organization for Economic Cooperation and Development (OECD), represents
a paradigm shift in international taxation. However, its implementation could
result in disputes under existing international investment treaties (IIAs). The
investor-state dispute settlement mechanisms (ISDS) may become a relevant
procedure for resolving those issues with tax carve-out provisions in IIAs
being a key factor. This raises a few relevant questions: What is the purpose
of tax carve-out clauses in the context of IIAs? What role do they have in
tax-related disputes under investment arbitration? This article explores their
crucial relevance in the context of implementing the OECD’s Pillar Two and
emphasizes their potential influence on tax-related disputes under IIAs and
their significance in preserving states’ sovereignty over their tax policies