Prescriptive Pricing and Stabilisation Clauses in Investment Agreements

‘Prescriptive’ pricing methods, which employ reference prices and fixed margins for tax purposes, have gained prominence as a pragmatic approach to combatting commodity trade mispricing and tax evasion, especially for countries with limited tax administration capabilities. While these methods hold promise for facilitating enforcement, reducing administrative burdens, and curtailing abusive tax avoidance practices, concerns have arisen about their potential deviation from established international rules and principles. The perceived risk of legal liabilities and investor claims, including ‘unfair treatment’ under investment treaties, acts as a significant uncertainty factor in the adoption of such methods. Thus, the present chapter addresses the legal aspects of ‘prescriptive’ pricing methods within the parameters of international investment law, offering a multifaceted perspective on challenges involving the scope of defence arguments that states can mobilise under international investment law to justify such methods and exploring the right and duty of states to regulate corporate conduct and economic activities under human rights law, as well as the practical limitations to this approach in present lawmaking practices.