Demands for tax justice have resounded worldwide, with inequality at historic and unsustainable levels and increased attention towards the tax practices of major multinational corporations from Google to Starbucks. However, a growing number of cases under the controversial investor-state dispute settlement (ISDS) system have challenged government tax decisions – from the withdrawal of previously granted tax breaks to multinationals to the imposition of higher taxes on profits from oil and mining.
Governments must be able to change their tax systems to respond to ensure multinationals pay their fair share and to ensure that critical public services are well funded. States must also be able to reconsider and withdraw tax breaks previously granted to multinationals if they no longer fit with national priorities. But their ability to do so, to change tax laws and pursue progressive tax policies, may be severely limited by the powerful ISDS system, through which foreign investors can sue states directly at international tribunals. This system has become increasingly controversial, though access to ISDS is already enshrined in thousands of free trade and investment agreements crisscrossing the globe.
Analysis of data and documents on hundreds of ISDS cases filed so far reveals that foreign investors have already sued at least 24 countries, from India to Romania, over tax-related disputes – including several cases where companies have used this system to successfully challenge – and lower – their tax bills.