The BEAT and the BITs: Can the Us Be Sued Over the BEAT?

8 Pages Posted: 11 May 2022 Last revised: 28 Jul 2022

Date Written: April 20, 2022


On December 21, 2020, the government of India announced that it will appeal an arbitration award of $5.6 billion issued in favor of Vodafone PLC by the Permanent Court of Arbitration (PCA) in the Hague. The award resulted from the decision of India to impose capital gains tax on Vodafone (as withholding agent) for its acquisition of a Cayman Islands subsidiary from Hutchison, which held the Indian telecommunication assets of the Hong-Kong based Hutchison group. The Indian Supreme Court had decided that no tax was due, but the Indian government passed legislation to overturn that decision retroactively. This, the PCA stated, was a violation of the “fair and equitable treatment” (FET) provision of the India-Netherlands Bilateral Investment Treaty (BIT).

The Vodafone saga, and its companion Cairn Energy (which also resulted in an Indian loss for $1.2 billion on similar facts under the India-UK BIT), illustrate the emergence of a new front for challenging the tax sovereignty of countries. The key point is that unlike tax treaties and trade treaties, investment treaties allow for direct investor-state arbitration. The issue we want to address in this paper is, could this instrument be used against the United States, which currently has 42 BITs?

The issue is interesting because of the adoption of the Base Erosion Anti-Abuse Tax (BEAT) in the Tax Cuts and Jobs Act (TCJA) in 2017. The BEAT is a violation of the non-discrimination article (Article 24) of all US tax treaties, because it effectively denies deductions for payments to related foreign parties but not to related domestic parties. In addition, under some circumstances (discussed below) the BEAT amounts to a tax on gross income that may exceed the foreign investor’s profit margin. The question is whether these provisions can be challenged in an investor-state arbitration under the BITs.

There are three hurdles than need to be addressed to answer this question. First, a suitable investor must be found from a country with which the US has a BIT. Second, because the issue involves taxation, the tax exclusion that is found in all US BITs must be overcome. Finally, the potential claimant must assess its chances of collecting any award.

Keywords: BEAT, bilateral investment treaties

JEL Classification: H26

Suggested Citation

Avi-Yonah, Reuven S., The BEAT and the BITs: Can the Us Be Sued Over the BEAT? (April 20, 2022). U of Michigan Public Law Research Paper No. 22-025, Available at SSRN: or

Reuven S. Avi-Yonah (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-647-4033 (Phone)

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