Arbitrability and Tax

Document Type

Book Chapter

Publication Date



Loukas A. Mistelis & Stavros L. Brekoulakis




Kluwer Law International




Assertions that tax matters remain “non-arbitrable” bring to mind the story of an elderly farmer who met his pastor while walking by the village church one Sunday. The clergyman asked the farmer if he believed in infant baptism. Being a sceptic, but hoping to avoid a theological controversy that might delay supper, the old man replied, “Believe in it? Reverend, I've seen it done!”

Arguments do exist to suggest that disputes about fiscal measures should remain beyond the reach of private adjudicators. Taxation directly implicates the fund-raising by which modern political collectivities operate. Thus it would not be odd for national courts to seek a monopoly on litigation touching such a vital sovereign prerogative.

In practice, however, arbitration of tax-related disputes proves very much a reality despite the doctrinal objections. The scholarly debate notwithstanding, arbitrators routinely address problems of taxation in the context of ordinary commercial contracts as well as claims by foreign investors brought against host states.

The amenability of tax disputes to arbitration remains highly fact-intensive, however. Although no hard-and-fast rule prohibits all tax arbitration per se, many arbitration claims related to fiscal matters will (and should) fail. In some instances the claim may not be ripe for adjudication, perhaps because the government has not yet ruled on the amount of tax (if any) payable. In other cases, the relevant investment treaty or arbitration clause may remove certain types of tax controversies from the arbitrators' adjudicatory power.

This essay begins by comparing the various contexts in which fiscal matter may be subject to arbitration, exploring why the nature of tax measures affects the universe of questions that arbitrators could normally be expected to address. Discussion then turns to a case study of the increasingly critical area of investment protection treaties. In this connection, the modest aim of the paper lies in suggesting an analytic starting point for distinguishing legitimate from illegitimate taxes.

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