The concept of taxation measures under the energy charter treaty

Investment arbitration case-law regarding the (autonomous) definition of “taxation measures” under art.21 of the Energy Charter Treaty (ECT) reveals some inconsistencies. Questions concerning the implications of bona fide taxation, the rationality of the “principal purpose” criterion in light of the object and purpose of art.21 and the legislative goals which might still be described as tax system endeavours, are yet to be solved. This article makes the case for a combined functional and structural approach, in light of which art.21 carve-out encompasses only “unilateral taxes” excluding “bilateral taxes” (fees) or special or financial contributions. This approach is fully in line with customary rules on treaty interpretation laid down in art.31 of the VCLT. A combined approach engages with investment treaties’ object and purpose, particularly rule of law as a path for economic development and investment promotion. A good faith interpretation of the taxation carve-out also points to a combined approach. If investment treaties are effectively aimed at tackling political risk, the path forward should emphasize their “compensatory” function (vis-à-vis domestic constitutions) while evincing some “comity” towards host states’ officials and high courts’ analysis.