Evolution of a Denial of Benefits Clause in International Investment Agreements

Abstract

          A denial of benefits clause is a mechanism used to limit the benefits of International Investment Agreements (IIAs) by excluding certain categories of investors who do not meet specified requirements, even if they fulfill the definition of an investor. Although this clause is an uncommon feature in investment treaties, it has attracted increasing attention due to its key role in addressing nationality planning aimed at obtaining investment treaty protection. To date, host states have invoked such clause in investment treaty arbitration with limited success, highlighting the need to refine the clause to make it more effective and responsive to states’ concerns regarding the implications of investment treaty protection. This study examines the evolution of the denial of benefits clause and observes that recent international investment agreements generally expand the criteria for denying benefits while providing greater clarity on certain procedural and substantive aspects of the clause's application. It is argued that the denial of benefits clause has developed and become more sophisticated to fulfill a range of objectives beyond what was initially anticipated.