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- Title
IGNOBLE TREATMENT: THE TAX INCREASE ON NOBLE ENERGY'S INTERESTS IN THE MASSIVE ISRAELI GAS STRIKES.
- Authors
Slawotsky, Joel
- Abstract
After decades of relatively sparse oil and gas finds, recent developments have transformed Israel from being energy dependent into a probable energy exporter with its own sovereign wealth fund. In 2009 and 2010, United States based Noble Energy ("NBL") and its Israeli corporate partners, made two giant gas strikes. One field, "Tamar," was the largest gas find in 2009 and the second, "Leviathan," was among the largest strikes in a decade. NBL had undertaken the costly and risky explorations relying upon a long-existing regulatory structure which resulted in a modest royalty rate in addition to the ordinary corporate income tax rate. However, following the gas discoveries, the Israeli government amended the regulatory structure in 2011 with the enactment of a new windfall energy profits law which sharply increased the tax rate. The new tax law contains no grandfather clause and includes all prior discoveries such as NBL's prior gas strikes. The enactment of the windfall profits tax-an amendment to the regulatory structure-raises a legal issue regarding the host state's right to impose a retroactive increased tax burden on NBL. As a sovereign power, Israel has the inherent right to exercise the core state function of taxation. However, the right may be curtailed by any contractual obligations to foreign investors contained in an investment treaty. The United States and Israel signed an investment treaty in the 1950s: the United States-Israel Friendship Commerce and Navigation Treaty ("FCN Treaty"). FCN Treaties were the predecessor international treaty agreements to Bilateral Investment Treaties ("BITs") and were developed to provide investors with guarantees against host state actions, protections similar to those contained in B1Ts. This Article opines that the imposition of a retroactive across-the-board higher tax regime violates guarantees given to NBL under the FCN Treaty. To be sure, exceptions to investment protections exist based upon "necessity" pursuant to "exigent circumstances." However, no national emergency justified the trumping of the FCN Treaty. ·Moreover, while the FCN Treaty provides for state-state resolution at the International Court of Justice, a strong argument exists that NBL can invoke the FCN Treaty's most-favored-nation clause to incorporate Israeli BITs with third-parties allowing for arbitration. Doing so would allow NBL to "borrow" a dispute resolution mechanism and allow it to directly file an arbitration claim.
- Subjects
ISRAEL; STRIKES &; lockouts; ENERGY tax laws; TAX rate laws; INVESTMENT treaties; WAR &; emergency legislation
- Publication
Emory International Law Review, 2013, Vol 27, Issue 1, p347
- ISSN
1052-2840
- Publication type
Article