United States: Bilateral Investment Treaties: When Double Taxation Agreements Are Not Enough

Last Updated: October 3 2017
Article by Rusudan Shervashidze and Nina Krauthamer

The U.S. enters into bilateral investment treaties ("B.I.T.'s") to protect and promote foreign investment. Unlike double taxation agreements ("D.T.A.'s"), which relate exclusively to tax matters, they are not usually seen as a defense mechanism when dealing with foreign tax authorities. Interestingly, they are!

Over the last few years B.I.T.'s have become useful tools for investors dealing with what appear to be unresolvable tax issues with foreign governments. This article will explore similarities and differences between B.I.T.'s and D.T.A.'s, and will dis­cuss the recent Georgian Manganese case, where the taxpayer chose to rely on the B.I.T. instead of the D.T.A.


The U.S. has concluded 47 B.I.T.'s, not including investment provisions and other investment-related instruments, with foreign jurisidictions. Of these countries, near­ly half do not have D.T.A.'s in place. They are Albania, Argentina, Bahrain, Bolivia, Cameroon, Democratic Republic of Congo, Croatia, Ecuador, El Salvador, Grana­da, Haiti, Honduras, Jordan, Mongolia, Mozambique, Nicaragua, Panama, Rwanda, Senegal, Trinidad and Tobago, and Uruguay.

B.I.T.'s and D.T.A.'s are drafted and negotiated by different institutions. A B.I.T. is negotiated by the national investment agency or the Ministry of Trade, while a D.T.A. is negotiated by the Ministry of Finance. Although they represent two dif­ferent agreements negotiated by two different institutions, there is a great deal of similarity between the two. Both provide certainty when making an investment, provide dispute resolution mechanisms, and assist with growth and investments in the partner countries.

In addition, B.I.T.'s provide many advantages that are not present in D.T.A.'s:

  • B.I.T.'s do not require that litigation commence in the local courts. Inves­tors can choose to arbitrate claims in the International Centre for Settlement of Investment Disputes ("I.C.S.I.D.") (Convention Arbitration), the Additional Facility of I.C.S.I.D. (if Convention Arbitration is not available) or any other arbitration institution or rules agreed upon by both parties to the dispute, or they can choose ad hoc arbitration using the Arbitration Rules of the United Nations Commission on International Trade Law ("U.N.C.I.T.R.A.L.").
  • B.I.T.'s provide that the host country will not treat a partner jurisdiction invest­ment, or activities associated therewith, less favorably than an investment, or associated activities, of its own nationals or companies, or nationals or com­panies of any third country. This usually provides a favorable commitment from the host country.
  • B.I.T.'s include a commitment to permit all transfers related to an investment to be made freely and without delay into and out of the host country.

Historically, B.I.T.'s have been chosen over the D.T.A.'s due to the availability of international arbitration without going through the local court system.

Notably, B.I.T.'s do not impose tax reductions or exemptions, or impose measures to reduce double taxation. For those benefits, taxpayers should continue to rely on D.T.A.'s.


Earlier this year a U.S. private company, Georgia American Alloys, Inc., ("G.A.A.") filed a request with the Department of Treasury for assistance in a dispute with the Government of Georgia pursuant to Article XIII of the U.S.-Georgia B.I.T. G.A.A., through its subsidiaries, is engaged in production of a manganese ferroalloy and has invested a significate amount not only in its Georgian facilities but in the local community's infrastructure and services.

According to the request (the "Submission") filed on May 4, 2017, the Government of Georgia used expropriatory measures1 when it assessed more than $82.45 mil­lion in taxes, penalties, and interest. G.G.A. alleged that the amount would entirely deprive it of its investments in Georgia. According to the Submission, Georgian authorities also intimidated and harassed one of the G.A.A. subsidiaries, Georgian Manganese, LLC ("G.M.") by denying fair court and audit proceedings through the lower court system.

The Submission covers following four issues:

  • Accounting of Waste. When calculating the value of G.M.'s inventory the Government of Georgia included valueless waste products as inventory, even though the company does not have the technology to obtain an eco­nomically viable manganese containing product from these materials. G.M. has tried to commercialize the waste, but the cost exceeds the price for which waste could be sold. Furthermore, two major accounting firms, PwC and EY, both confirmed that G.M.'s accounting method complies with the Tax Code of Georgia and International Accounting Standards.
  • Transfer Pricing. The Government of Georgia claimed that the exported product was improperly valued. It is not clear how the Government of Geor­gia priced the products, as it has not produced its calculation method. How­ever, G.M. obtained an opinion from the outside auditors, EY and PwC, that verified the pricing of its products and confirmed it is consistent with the arm's length principal defined in the O.E.C.D. guidelines governing intercompany transactions.
  • Employee Meals. G.M. provided food (so-called subsidized employee meals) to its employees, for which it recorded its costs and paid taxes there­on based on the market price of the meals. The general standard is market price plus a 10% mark up. However, the Government of Georgia assessed
  • taxes on the meals at the market price plus a 70% mark up. According to the Submission, G.M.'s valuation meets the general standard.
  • Additional Taxes, Penalties and Interest. In addition to the taxes described above, the Government of Georgia assessed additional taxes, penalties, and interest, which G.A.A. contested.

Interestingly, in this case, G.A.A. did not choose the B.I.T. because of the possibility to arbitrate the case without going to the court. Rather, G.A.A. relied on the B.I.T. with Georgia because the D.T.A. did not provide a feasible defense to the fines imposed to by the Government of Georgia.

Soon after the Submission was filed, Georgia's Kutaisi Court of Appeals overturned the lower court's decision and ordered the Georgian Revenue Service to reopen the case to calculate the correct payment due.


In recent years, Georgia has become a popular frontier for foreign businesses. The Kutaisi Court of Appeals decision may be a signal that the court was mindful of the impact its decision could have on future investments in Georgia.

While D.T.A.'s are the traditional way that multinational taxpayers resolve tax dis­putes, the use of B.I.T.'s provides an interesting alternative. B.I.T.'s are, perhaps, the only method of resolving financial disputes (including confiscatory tax assess­ments) in those jurisdictions that do not have D.T.A.'s with the U.S. However, Geor­gian Manganese serves as a reminder that their use should not be overlooked in jurisdictions where multiple treaty options are available.


1 Expropriation occurs when state measures have the effect of substantially de­priving an investor of the value of its investment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Nina Krauthamer
In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.