Indirect Expropriation Essay

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Direct expropriation is an outright taking of private property by the State, generally aimed at a specific investor or applied to a specific investment, typically involving a transfer of ownership rights to the State. 1.2.2 Indirect Expropriation The United Nations Conference on Trade and Development (UNCTAD) characterises indirect expropriations by the following cumulative elements: “a) an act attributable to the state; b) interference with property rights or other protected legal interests; c) of such degree that the relevant rights or interests lose all or most of their value or the owner is deprived of control over the investment; d) Even though the owner retains the legal title or remains in physical possession.” It is not often disputed …show more content…

The tribunal held that the “test is whether that inference is sufficiently restrictive to support a conclusion that the property has been “taken from its owner”. The tribunal considered the term “tantamount” contained in the expropriation clause and found that for a measure to qualify as indirect expropriation it must be equivalent to direct expropriation. The tribunal in the case of Tecmed v Mexico, held the State measure will be indirect expropriation if it is permanent and if the investor’s rights have been affected so that “any form of exploitation thereof … has disappeared”. In Telenor Mobile Communication A.S v Hungary, it was held that the investment should be viewed as a whole, and expropriation will occur if there has been a substantial erosion of value. The tribunal in Revere Copper found indirect expropriation had occurred by examining the “impact on effective control over use and operation” of the investor’s property. Formal ownership of the property was not affected, but the control of use and operation by the investor was no longer effective. Taxation, while entailing an overt transfer of property to the State, is generally considered an exception to laws prohibiting expropriation. However, there are some instances where it may qualify as indirect expropriation. In Occidental v Ecuador, the tribunal stated succinctly that “taxes can result in expropriation”. In Feldman, the tribunal held that “…tax measures, even if they are designed to and have the effect of an expropriation, will be indirect, with an effect that may be tantamount to

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