INTRODUCTION
The immediate reaction of tax advisers in seeking relief for a client faced with a cross-border tax dispute is to seek Competent Authority relief under the Mutual Agreement Procedure of an applicable income tax treaty. As explained in Paul Kraan's article elsewhere in this edition of Insights, a Bilateral Investment Treaty ("B.I.T.") can also protect against certain abuses by foreign tax authorities. A B.I.T. is designed to promote foreign investment between two nations. One of the main points of the treaty is to assure an investor from one state that its investment in the other state will be treated fairly. Typically, this means that the foreign investor or its local subsidiary will not be the target of unfair sovereign acts, but it also protects against unfair or confiscatory tax assessments. Approximately 3,000 B.I.T.'s are currently in effect.
Compared to an income tax treaty, which aims to avoid double taxation by allocating taxing rights between its parties and provides a dispute resolution process to be followed by the Competent Authorities of its parties' tax administrations, a B.I.T.is structured to ensure that the foreign investor and its local subsidiary will receive the same treatment as domestic companies, including fair and equitable treatment and protection from expropriation. In addition, the dispute resolution provision under a B.I.T. grants a foreign investor the right to bring an action before an international arbitration panel that is enforceable as a judgment in the event obligations imposed on a party to a B.I.T. are violated. However, the wheels of justice grind slowly, as will be seen below.
An example of a company seeking relief from confiscatory tax assessments under a B.I.T. involves a French oil and gas company, Perenco Ecuador Limited ("Perenco"), which in 2008 filed a petition requesting arbitration by the International Centre for Settlement of Investment Disputes ("I.C.S.I.D.") against the government of Ecuador ("Ecuador"). This petition was filed following the enactment of a law in Ecuador that increased the participation of the Ecuadorian government at the expense of Perenco. Five similar petitions were filed with the I.C.S.I.D. in response to these measures.
A B.I.T. between two Member States no longer has a role to play in resolving disputes that arise entirely within the European Union in light of the Achmea decision in 2018, which dismissed the competency of the B.I.T. as an avenue for a resident of one Member State to obtain relief against another Member State based on Euro[1]pean Union ("E.U.") law.
This article will explore two cases where arbitration under a B.I.T. provided ephemeral benefits. They are Perenco v. Ecuador and Achmea v. The Slovak Republic.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
