The Bona Fide Investor: Corporate Nationality and Treaty Shopping in Investment Treaty Law

<p>This thesis addresses the problem of treaty shopping in investment treaty law. It seeks to illustrate how the problem stems from, and can in part be resolved by, the concept and definition of corporate nationality. It explores whether, and if so how and what, limits ought to be placed on the manipulation of nationality for the purpose of gaining investment treaty protection, to enable a principled basis to utilise nationality to prescribe the extent of rights and obligations in investment treaties. The importance of nationality requirements in investment treaties cannot be overstated—the definition of “investor” in any treaty defines which entities are entitled to substantive protections contained in the treaty for the benefit of states and investors alike. Entities making an investment need to know whether, and if so how, they can structure their investment to achieve protection of applicable investment treaties. Investors who have suffered damage need to know whether they are entitled to make a claim. States need to appreciate the extent of their potential obligations. Many investment treaties define qualifying investors in a broad way that includes any entity incorporated in a contracting state. Putative investors, including those from third states, or nationals of the host state of the investment, seek to come within the relevant definition, often by insertion of an intermediary company incorporated in the desired home state into the ownership chain of the investment. This thesis challenges the view that fulfilment of formalities set out in an investment treaty is sufficient to qualify as an investor where there is no substance behind the corporate form. To some degree, states and investment treaty tribunals have tried to abrogate treaty shopping by manipulation of corporate nationality by reference to the international law concept of genuine connection with the claimant’s state of incorporation, or by way of imposition of criteria for nationality based on the nationality of the corporate entity’s controller or proof of substantial business activity in its state of incorporation. The majority of investment treaty tribunals, however, have eschewed efforts to imply a substantive test or check on the attribution of nationality beyond literal fulfillment of nationality criteria. This thesis promotes a purposive approach that requires fulfillment of express treaty criteria for nationality, but also subjects the claimant to a substantive economic reality check in which the inquiry is to determine the reason for existence of the corporate claimant in relation to the relevant investment. Such an approach is required by an interpretative methodology that gives equal weight to the four tenets of art 31(1) of the Vienna Convention: ordinary meaning, good faith, context and object and purpose. If a corporate entity exists primarily to procure treaty rights, then it is not a bona fide investor consistent with the object and purpose of investment treaty jurisdictional provisions, even if it complies with the ordinary meaning of the express formal nationality criteria. If, however, it meets any express criteria and has a genuine ulterior commercial reason to exist in the ownership structure of the investment, then it qualifies as an investor entitled to the protection of an investment treaty. The approach promoted by this thesis is derived from the treaty shopping antidote crafted by municipal courts assessing the bona fides of corporate applicants for tax relief under double tax treaties. In addition, the thesis analyses municipal law regarding piercing the corporate veil, the law of diplomatic protection, and analogous jurisdictional concepts in investment treaty law including the application of the principle of abuse of right, and identifies that underlying all these areas of inquiry is the central question of the purpose, or commercial reason to exist, of the relevant corporate entity. Finally, this thesis demonstrates how a substantive approach can be applied in a principled and reasonably certain way. The use of corporate structures by foreign investors to procure rights under favourable investment treaties (treaty shopping) threatens to undermine the legitimacy of international investment treaty arbitration. Simon Foote QC's research illustrates how the problem stems from the concept and interpretation of corporate nationality criteria at international law. It promotes a new way to distinguish bona fide foreign investors by looking to the commercial purpose of corporate entities in relation to the relevant investment. It illustrates how that approach derives from analogous concepts in international and municipal law and how it can be implemented by states and investment treaty tribunals.</p>

The Bona Fide Investor: Corporate Nationality and Treaty Shopping in Investment Treaty Law

<p>This thesis addresses the problem of treaty shopping in investment treaty law. It seeks to illustrate how the problem stems from, and can in part be resolved by, the concept and definition of corporate nationality. It explores whether, and if so how and what, limits ought to be placed on the manipulation of nationality for the purpose of gaining investment treaty protection, to enable a principled basis to utilise nationality to prescribe the extent of rights and obligations in investment treaties. The importance of nationality requirements in investment treaties cannot be overstated—the definition of “investor” in any treaty defines which entities are entitled to substantive protections contained in the treaty for the benefit of states and investors alike. Entities making an investment need to know whether, and if so how, they can structure their investment to achieve protection of applicable investment treaties. Investors who have suffered damage need to know whether they are entitled to make a claim. States need to appreciate the extent of their potential obligations. Many investment treaties define qualifying investors in a broad way that includes any entity incorporated in a contracting state. Putative investors, including those from third states, or nationals of the host state of the investment, seek to come within the relevant definition, often by insertion of an intermediary company incorporated in the desired home state into the ownership chain of the investment. This thesis challenges the view that fulfilment of formalities set out in an investment treaty is sufficient to qualify as an investor where there is no substance behind the corporate form. To some degree, states and investment treaty tribunals have tried to abrogate treaty shopping by manipulation of corporate nationality by reference to the international law concept of genuine connection with the claimant’s state of incorporation, or by way of imposition of criteria for nationality based on the nationality of the corporate entity’s controller or proof of substantial business activity in its state of incorporation. The majority of investment treaty tribunals, however, have eschewed efforts to imply a substantive test or check on the attribution of nationality beyond literal fulfillment of nationality criteria. This thesis promotes a purposive approach that requires fulfillment of express treaty criteria for nationality, but also subjects the claimant to a substantive economic reality check in which the inquiry is to determine the reason for existence of the corporate claimant in relation to the relevant investment. Such an approach is required by an interpretative methodology that gives equal weight to the four tenets of art 31(1) of the Vienna Convention: ordinary meaning, good faith, context and object and purpose. If a corporate entity exists primarily to procure treaty rights, then it is not a bona fide investor consistent with the object and purpose of investment treaty jurisdictional provisions, even if it complies with the ordinary meaning of the express formal nationality criteria. If, however, it meets any express criteria and has a genuine ulterior commercial reason to exist in the ownership structure of the investment, then it qualifies as an investor entitled to the protection of an investment treaty. The approach promoted by this thesis is derived from the treaty shopping antidote crafted by municipal courts assessing the bona fides of corporate applicants for tax relief under double tax treaties. In addition, the thesis analyses municipal law regarding piercing the corporate veil, the law of diplomatic protection, and analogous jurisdictional concepts in investment treaty law including the application of the principle of abuse of right, and identifies that underlying all these areas of inquiry is the central question of the purpose, or commercial reason to exist, of the relevant corporate entity. Finally, this thesis demonstrates how a substantive approach can be applied in a principled and reasonably certain way. The use of corporate structures by foreign investors to procure rights under favourable investment treaties (treaty shopping) threatens to undermine the legitimacy of international investment treaty arbitration. Simon Foote QC's research illustrates how the problem stems from the concept and interpretation of corporate nationality criteria at international law. It promotes a new way to distinguish bona fide foreign investors by looking to the commercial purpose of corporate entities in relation to the relevant investment. It illustrates how that approach derives from analogous concepts in international and municipal law and how it can be implemented by states and investment treaty tribunals.</p>

IS AUSTIN'S THEORY INCONGRUENT WITH EXISTING CONCEPTS OF SOVEREIGN AND DISPUTE SETTLEMENT IN TREATIES AND INDIAN LEGISLATION?

For his bold declaration that international law is not "true law" since there is no sovereign, John Austin has been extensively attacked and praised in equal measure. According to Austin, the concept of law is, “Law is a command of the sovereign backed by a sanction.” This study investigates Austin's viewpoint and evaluates it in light of current legal systems, present international law, modern Indian laws, and the analysis of legal issues in the treaty law. While Austin's viewpoint was correct in terms of the legal systems of his day, it cannot be applied to the current international, and Indian legal system

Corporate Social Responsibility and MNCs: An Appraisal from Investment Treaty Law Perspective

Recent investment treaties recognize corporate social responsibility (CSR) as a mechanism for regulating corporate behavior concerning the protection and promotion of human rights, social and environmental standards. These treaties often include a universally recognized soft law version of CSR developed by the International Labor Organization (ILO) and the Organization for Economic Co-operation and Development (OECD), considered prominent sources of CSR voluntary standards. This study analyzed significant advances in including such voluntary standards in investment treaty law, which led to implementing globally agreed norms regarding sustainable development into action. In addition to the inclusion of CSR standards in legally binding documents, this study argued that the practical issues involved in implementing the CSR standards should be addressed from the perspective of capital-dependent developing countries. To this end, this study adopted the due diligence test to apply CSR standards in cross-border investments better. For this purpose, theoretical analysis that combined descriptive and analytical approaches based on the available primary and secondary sources best suited current research. The study showed that applying CSR standards in capital-dependent developing countries was only possible when corporate, home state, and the host government took appropriate actions at the policy level. It concluded that such additional measures were needed to effectively implement CSR standards emphasizing prevention was better than cure and ensuring the appropriate due diligence process by the relevant parties. KEYWORDS: Corporate Social Responsibility, Investment Laws, Developing Countries.

Derogations and Reservations in International Law

The topic of reservations and derogations is a complex issue in treaty law. Reservations define the content and extent of a legal obligation for a party to a treaty. They thereby allow states to accommodate their specific interests in the framework of multilateral treaties. The starting point for any examination of reservations is the 1969 Vienna Convention on the Law of Treaties (VCLT). According to the definition contained in Article 2(1)(d) VCLT, a reservation means “a unilateral statement, however phrased or named, made by a State, when signing, ratifying, accepting, approving or acceding to a treaty, whereby it purports to exclude or to modify the legal effect of certain provisions of the treaty in their application to that State.” Some unresolved and controversial issues in treaty law include the legal effects of objections to reservations, the legal effect of impermissible reservations, and the legal status of interpretative declarations. The VCLT does not address the notion of derogations. Typically, in time of public emergency which threatens the life of the nation and the existence of which is officially proclaimed, states may take measures derogating from their obligations under certain treaties to the extent strictly required by the exigencies of the situation. This is provided that such measures are not inconsistent with their other obligations under international law. Specific clauses which lay down specific procedures on derogations are usually incorporated in human rights treaties. However, it is unclear under what precise circumstances a state may derogate from its treaty obligations, or what procedure is to be followed in this regard. The concepts of reservations and derogations have been of interest for many years, not least in the context of human rights treaties. In this article, the main focus is on reservations to and derogations from multilateral treaties. Historical Background of Reservations to Treaties Prior to the 1969 VCLT gives a historical overview of the development of the regime of reservations to treaties prior to the adoption of the 1969 VCLT. Reservations Under the Regime of the 1969 VCLT addresses reservations under the 1969 VCLT regime. Legal Effects of and Procedure Regarding Reservations deals with the legal effects of permissible reservations. Legal Effects of Impermissible Reservations addresses the legal effects of invalid reservations, and Reservations to Human Rights Treaties addresses reservations to human rights treaties. Practice of Human Rights Bodies on Reservations to Human Rights Treaties looks at some approaches of human rights bodies with respect to reservations to human rights treaties. Interpretative Declarations addresses the issue of interpretative declarations, and 2011 ILC Guide to Practice on Reservations discusses the 2011 Guide to Practice on Reservations to Treaties. Lastly, Derogations deals with the notion of derogations, with a particular emphasis on derogations from norms ius cogens and human rights treaties.

3 Relationship with other Areas of International Law

This chapter discusses the interaction of the international tax regime with other international law disciplines such as trade law, investment treaty law, and human rights law. Moreover, it contains an overview of tax rules in non-tax agreements such status of force agreements or headquarter agreements signed by host states with international organizations. The goal is to outline how these other legal regimes influence the international tax regime. The most obvious example is trade law as it limits the legislative leeway of states in tax matters in various ways. In particular, obligations derived from most-favoured nation and national treatment clauses are of great importance for tax policy and will be discussed in detail. But also, investment treaties provide for several policy limitations. In order to outline the interaction between trade law, investment treaty law, and the international tax regime, reference is made so several decisions of international courts.

Acts of genocide and international law

In addition to the loss of over 200,000 lives due to the COVID-19 pandemic, racist violence, riots, wildfires, storms and political controversies in an election year, the United States of America might now also see acts of genocide. If recent reports are confirmed, multiple acts of genocide have been committed against migrants from Central America, targeting in particular women and children. This text outlines the elements which define the crime of genocide under international law and explains the special, jus cogens, status the prohibition of genocide has under both international treaty law and customary international law. It includes a call for further investigations, pursuant to the obligation of all States to combat genocide.