The legal problems of the intersection between tax measures and international investment law : a comparative analysis with tax-related disputes under the World Trade Organization and recommendations for Thailand regarding tax policies, the enactment of tax law, tax administration and the dispute resolution : full research report

Name: Patharawan Chongchit

keyword: Tax sovereignty

; Tax policy

; International trade law

; International investment law

Abstract: Tax sovereignty is one of the most fundamental public policies of states; nevertheless, a state's authority to regulate taxation is constrained by both domestic law and public international law. In the area of public international law, nations' tax sovereignty is constrained not only by international trade and tax treaties but also by international investment agreements (IIAs), complicating tax policy design and increasing the number of tax-related conflicts across various jurisprudences. Previous research by the author examined the intersection of tax sovereignty and international trade rules under the World Trade Organization (WTO); however, similarities and differences can be drawn between the two, causing additional complications for tax policymakers, legislators, administrators, and adjudicators around the world. To increase awareness of the intersections between tax sovereignty, international trade, and international investment laws, as well as the limitation of Thailand's tax sovereignty under these agreements, this study analyses the legal issue of the intersection between tax measures and IIAs, as well as the ramifications for Thailand's tax regime. By employing a comparative analysis with the previous research, this study examines the justification for the limitation of tax sovereignty under IIAs, the extent of the regulatory space afforded to states in investment treaty standards, exception clauses, tax carve-out clauses that are provisions that remove all or some tax measures from the scope of the treaty, and dispute resolutions applicable to tax-related disputes, as well as the jurisprudence of investment tribunals in cases involving tax measures such as, the enactment of tax law, tax administration and the dispute resolution. The limitations of tax sovereignty under Thailand's IIAs are then examined in light of this context. A comparative study yields four major conclusions and a two-fold recommended course of action. First, through an examination of international political and economic theory, this research identifies neoliberalism as the prevailing ideology of the post-World War II era, which prioritises economic liberalisation while constraining states' sovereignty to certain degree. In light of this ideology, both WTO rules and IIAs constrain states' ability to create and implement tax policies to some extent. However, while the WTO has a defined goal of balancing trade liberalisation with legitimate nations' right to regulate by limiting tax measures that restrict or distort international trade, the IIAs' goal is not consistent. The states' goal of improving IIAs functions to achieve a balance between investment protection and sustainable development is only found in a small number of IIAs, certain free trade agreements (FTAs) with an investment chapter and new-generation IIAs, whereas the majority of first-generation IIAs, which are still in force and dominate in terms of number, focus on investment protection. Second, a comparative analysis of WTO agreements and IIAs demonstrates that WTO provisions limiting states' authority to regulate in taxation have a far greater scope than IIAs; nonetheless, as multilateral agreements, they are consistently interpreted and applicable to WTO members' tax measures by the WTO dispute settlement mechanism to balance between tax sovereignty and free trade. In contrast, the standards of protection applicable to domestic tax policies, the right to regulate exceptions, tax carve-out clauses, and investor-state dispute settlement (ISDS) for tax-related disputes under IIAs are fragmented, ranging from the proinvestor perspective to the pro-state perspective resulting in a lack of equilibrium between tax sovereignty and investment protection. Third, a comparative analysis of tax-related disputes under the WTO and IIAs shows that tax-related issues under the WTO and IIAs revolve around domestic tax compliance and international economic law. Any sort of domestic tax measures such as, the enactment of tax law and regulations, tax administration as well the dispute resolution might be accused of violating the WTO, IIAs, or both. The features of tax measures that breach WTO agreements and IIAs are different depending on the criteria set by the relevant agreements. Despite their similarities, although WTO disputes are interstate, IIA disputes are between investors and states. The legal concepts asserted, and the nature of putative tax measures differ but may overlap. Discriminatory taxes were the most contested in the WTO, whereas the fair and equitable treatment standard and expropriation were the most challenged in ISDS. The WTO's remedy is to adjust domestic taxation or retaliation, while losing governments in ISDS are compelled to compensate foreign investors. Fourth, a comparative review of Thailand's obligations under the WTO agreements and IIAs indicates that all sorts of Thai tax measures are governed by WTO rules and IIAs. While Thailand's obligations under the WTO agreements align with those of other WTO members, its obligations under IIAs differ significantly. In addition, while WTO standards require members to exercise their ability to use exceptions in good faith to defend legitimate interests, the majority of Thailand's IIAs include the right to regulatory exclusions. Furthermore, whereas tax disputes arising under WTO agreements must be addressed through the WTO dispute settlement system, dispute resolution under Thailand's IIAs is fragmented. The majority of Thailand's IIAs provide international arbitration without a modified procedure similar to private commercial arbitration and without a particular mechanism for tax-related disputes. These traits pose significant hazards to tax policymaking, legislation, administration, and adjudication. In light of the aforementioned findings, the recommendations made were twofold. This study recommends that both domestic and international methods are required to address the issues raised above. First, Thailand's tax policymakers, lawmakers, administrators, and adjudicators must consider IIAs and WTO laws while developing tax policies, formulating tax legislation, enforcing tax laws, and adjudicating tax disputes. Second, Thailand's investment treaty negotiators should think about how to provide a higher level of lawful regulatory independence while attracting longterm and high-quality foreign direct investment. Among the options offered in this research were improving the clarity of the concept of taxes, strengthening substantive investment safeguards, including the right to regulate exceptions and tax carve-out clauses, as well as a special mechanism for tax-related disputes in Thailand's IIAs. Recommendations will assist Thailand in avoiding adverse impacts and future disputes under the WTO and IIAs and preserve a balance between public and private interests and achieve sustainable development.

Thammasat University. Thammasat University Library

Address: BANGKOK

Email: preserv@tu.ac.th

Name: Thammasat University. Faculty of Law. Research Promotion Committee

Role: funding agency

Created: 2568

Modified: 2568-06-19

Issued: 2025-06-18

งานวิจัย/Research report

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