Taxation Of International Arbitration Awards

The taxation of damages in international arbitration awards should be a significant consideration for any party embroiled in an arbitrable dispute. According to Keller and Leikin, the average tax liability in cases heard before tribunals established under the International Convention for Settlement of Investment Disputes (the "ICSID") is an eye-watering USD 16-38.5 million.¹ Nevertheless, the question of taxation frequently goes overlooked. This note provides an overview of the main elements to consider in relation to the taxation of international arbitration awards.

Impacts of Taxation

The general principle for the calculation of damages can be traced back to the seminal case of Factory At Chorzów in which a tribunal decided that "reparation must, as far as possible, wipe out all the consequences of the illegal act and reestablish the situation which would, in all probability, have existed if that act had not been committed."² This is sometimes called the