Piercing the Corporate Veil in International Investment Law: Problems with the Denial of Benefits Clause

Abstract

The abolition of Investor-State Dispute Settlement (ISDS) between Canada and the United States in the Canada–United States–Mexico Agreement (CUSMA) is likely to renew the interest for corporate strategies aiming to take advantage of the protection of investment agreements concluded with third states. Treaty shopping and the problem of free riding by third country investors is certainly not a new feature of foreign investment. This problem is specifically addressed by denial of benefits (DoB) clauses in many investment agreements. DoB clauses allow a host state to pierce the corporate veil in order to deny treaty protection to foreign investors that have no economic connection to the state of incorporation. This paper explores the problems of form and the problems of substance of the DoB clause raised in arbitral decisions, with some concluding remarks.