18 ESSENTIAL ELEMENTS OF TAXATION – INVESTMENT PROTECTION AND DISPUTE SETTLEMENT Stefano Castagna * A. INTRODUCTION 18.01 B. TAX WITHIN INTERNATIONAL INVESTMENT PROTECTION 18.03 1. Protection of investment and taxation in international investment agreements 18.03 a. Jurisdiction of investment tribunals over tax matters and topical exclusions of jurisdiction 18.03 b. Consequences of the jurisdiction of international investment arbitral tribunals 18.13 2. The effect of tax liability on full compensation and damages valuation 18.18 C. INTERNATIONAL TAX DISPUTE SETTLEMENT 18.27 1. The OECD approach to dispute settlement in international tax law 18.28 2. International tax dispute settlement in the European Union 18.42 D. SOFT LAW STANDARDS IN TAXATION AND THEIR POTENTIAL PRACTICAL USES IN INVESTMENT ARBITRATION 18.63 E. CONCLUSION 18.76 A. INTRODUCTION When matters of investment and international operations are intertwined with elements of taxation, thorny issues tend to present themselves at the practitioner’s doorstep. Investment arbitration is sufficiently complex by itself, as are international tax arbitration cases. The reciprocal impact and potential interactions between international investment arbitration and international taxation is a topic where one must humbly 1 acknowledge that there will never be a hard drive large enough to store all solutions to all issues that might arise. 2 It might be difficult even for the best practitioner to anticipate how the tax liability in relation to the damages awarded to a claimant by an investment tribunal will be treated by the jurisdictions involved, or how a tax administration will address the taxation of a given operation between multiple related entities. One should therefore be particularly careful in managing risk. On the other hand, investment tribunals have struggled to juggle maintaining equilibrium between the rights of claimants and respondents in various instances, including tax audits and indirect * Date of submission: 25/05/2020. 1 For a discussion on humility, knowledge and deficiency, see Thomas Aquinas, Summa Theologiae (New York: Benziger Brothers 1911–1925) IIa-IIae Q 161. 2 Just for the record, the OECD has specifically addressed possible overlaps in relation to international taxation and the international trade regime. See OECD, Model Tax Convention on Income and on Capital (OECD Publishing 2017), Commentary to art 25 paras 88–94. 426 18.01 Stefano Castagna - 9781788974004 Downloaded from PubFactory at 06/18/2022 03:22:55PM via free access