Good Faith and Investment Treaties With a Particular View on Pillar Two

Good faith has distinct functions in investment law that balance competing interests. It protects investors’ legitimate expectations under investment agreements and stabilization clauses while safeguarding host states’ right to regulate in good faith for a legitimate public interest or purpose. This article first examines whether amendments of the legal and tax regulatory framework by host states, as part of the Pillar Two global policy reform, frustrates investors’ legitimate expectations. It then assesses if such changes could still qualify as good faith conduct by a state that is pursuing legitimate policy objectives thereby excluding liability. Additionally, the article explores how home states’ activation of the Pillar Two mechanisms may conflict with treaties’ performance in good faith and estoppel. Finally, the article investigates how tribunals weigh the good faith aspect in involved parties’ behaviour when calculating liability for damages. It assesses whether the coercive effect on host states caused by Pillar Two mechanisms activated by home states could make them fully or partially liable for damages. The article accentuates the increasing relevance of good faith in current international tax policymaking in which political and economic pressure has become a powerful tool for shaping global rules.