Tax Gross-up in Investment Treaty Arbitration : Legitimate Concern or a Method to Inflate Damages?

Tax gross-up claims are increasingly common in investment treaty arbitration. And despite the fact that they may reach hundreds of millions of dollars, issues surrounding the taxation of awards have received surprisingly little attention. In this article, the author reviews nineteen publicly available cases dealing with tax gross-up and presents them in an analytical framework. The author finds that the taxation of awards by host states can present some genuine issues of double taxation and merits the consideration of the tribunals. In contrast, the taxation of awards by investors' home states is rather a method to inflate damages most often through the applicable corporate tax rate in the investor's home state. This is due to the lack of causation between the host state's breaches and the home state's taxation of awards, and the speculative and uncertain nature of damages for the taxation of awards by home states