Tax stabilization agreements are typically agreements that provide tax incentives to investors for a fixed term.
They can take various forms and may be separate agreements between the government and an investor or may be contained in a tax stabilization clause in an investment contract.
The principal aim is to protect the investor from any changes to the tax law for a fixed period after the agreement comes into effect. This provides certainty to the investor but limits the jurisdictions revenue raising opportunities in future years.
Tax stabilization agreements raise a number of issues under Pillar Two. In this article we look at the impact of Pillar Two on tax stabilization agreements and the potential benefits of renegotiating agreements.