The Impact of Corporate Taxation on Economic Losses
Taxes, and particularly taxes on corporate profits, are a fact of life in many jurisdictions. As a result, the treatment of tax in the calculation of awards of compensation made by tribunals in international commercial and investment treaty arbitration can have a significant impact on the value of an award to a recipient. Claimants can be over- or under-compensated for economic losses when taxes are not considered appropriately or at all.
The treatment of taxation in relation to awards of damages may, depending on the circumstances, be a question of the law of damages before it is a question of the assessment of economic loss. In this chapter, I focus on questions of economic loss arising in this context. These issues can be complex, given the nature of the calculation of an award, its timing and the international context in which many claims are made. Perhaps partly as a result, this area has often been given limited attention by tribunals and parties to disputes.
This paper describes some of the issues that can contribute to the distortion of after-tax award values, and explores some simple steps that can be taken to mitigate such distortions and thereby achieve more equitable compensation awards.