Sovereign right to taxSeveral ISDS tribunals have recognised the fundamental principle that taxation is an intrinsic element of the state’s sovereign power. The tribunal held that under customary international law, there are two limits on the state’s right to tax. The tribunal held that a state’s tax measures would amount to an expropriation of foreign investment if the tax law is extraordinary, punitive in amount, or arbitrary in incidence. In sum, the debate never was whether India has a sovereign right to tax, but whether this sovereign right is subject to certain limitations. The answer is an emphatic ‘yes’ because under international law the sovereign right to tax is not absolute.

Source: The Hindu August 08, 2021 18:45 UTC