Avoiding Double Taxation on International Arbitration Awards - Journal of Damages in International Arbitration, Vol.4, No.2
Originally from Journal of Damages in International Arbitration
In the recent international arbitration case between Venezuela Holdings B.V. et al. and Venezuela, the Tribunal included the following commentary in the Award:
The Claimants contend that compensation should be calculated and payable in an amount net of any taxes, domestic or foreign. Accordingly, they request that compensation be calculated on an after-tax basis and that the quantum of the compensation be increased to include the amount of any tax levied by the Respondent and the amount of any tax liability that may be incurred as a result of the Award and as a consequence of the Respondent’s wrongful measures. The Claimants consider that ‘at the very least’, the Tribunal should specify that the compensation established in the Award is ‘net of taxes and shall be automatically grossed up to offset any Venezuelan tax liability that may be imposed or purportedly may arise from that compensation’…
Regarding taxation by Venezuela, the Tribunal recalls that the compensation awarded to the Claimants has been calculated taking into account all taxes to be paid to the Venezuelan authorities. As a consequence, that compensation should be paid net of any Venezuelan tax.
The Tribunal’s decision in this case raises interesting issues that warrant further discussion and analysis. For example, what is the basis of the Claimants’ request that “compensation be increased to include the amount of any tax levied by the Respondent and the amount of any tax liability that may be incurred as a result of the Award” and why did the Tribunal agree that “compensation should be paid net of any Venezuelan tax”? In this article I will discuss taxation in the context of international arbitration awards and analyze some of the key issues that arise when considering the potential taxation of an award as part of the calculation of economic damages.