The right to raise revenue through taxation is a sovereign right of the state. Disputes concerning taxes traditionally have been resolved before the national courts of the sovereign state that levied the tax (e.g., the U.S. Tax Court).
Investment treaties, however, may allow foreign investors to seek relief in international arbitration against host state taxes to the extent they are expropriatory, discriminatory or violate certain minimum standards of fairness. Furthermore, investors in foreign jurisdictions often seek to include “tax stabilization” clauses in long-term agreements with host states, particularly in emerging markets. Investment treaties and investor-state agreements thus create ways to challenge adverse measures of taxation, which investors are increasingly prepared to explore.
