Publications

Simon Gabriel; in: ASA Bull. 1 / 2013, p. 11 et seqq.

I. The Problem

A. Poten­tial Sun­set of Exist­ing EU BITs

Glob­al for­eign direct invest­ment (“FDI”) remains sig­nif­i­cant and is expect­ed to fur­ther grow in the next few years, irre­spec­tive of the del­i­cate sit­u­a­tion in the finan­cial markets:

“Glob­al for­eign direct invest­ment (FDI) flows exceed­ed the pre-cri­sis aver­age in 2011, reach­ing $1.5 tril­lion despite tur­moil in the glob­al economy. […]

Longer-term pro­jec­tions show a mod­er­ate but steady rise, with glob­al FDI reach­ing $1.8 tril­lion in 2013 and $1.9 tril­lion in 2014, bar­ring any macro­eco­nom­ic shocks.”¹

A firm pre­req­ui­site for the con­tin­u­ing suc­cess of FDI is a sol­id basis of legal cer­tain­ty for for­eign investors:

“Pre­req­ui­site for the func­tion­ing and fur­ther devel­op­ment of inter­na­tion­al invest­ment activ­i­ty is great­est pos­si­ble legal cer­tain­ty.”²

In recent years, how­ev­er, there has been a lot of dis­cus­sion on the rela­tion­ship between the laws of the Euro­pean Union (“EU”) and Bilat­er­al Invest­ment Treaties (“BITs”) of its mem­ber states.³ Con­sid­er­ing the most recent devel­op­ments it appears that (i) the future of intra-EU BITs⁴ is in jeop­ardy⁵ and (ii) extra-EU BITs of EU-mem­ber states are in flux.⁶ In par­tic­u­lar, the Euro­pean Com­mis­sion has urged mem­ber states to ter­mi­nate their intra-EU BITs. This affects legal cer­tain­ty of intra-EU BIT-pro­tec­tion already in the near future.⁷

Con­sid­er­ing for­eign investors’ gen­er­al wish for long-term legal cer­tain­ty a grow­ing inter­est for plan­ning for­eign invest­ments via sta­ble coun­tries out­side EU may be expect­ed. In par­tic­u­lar, abol­ish­ment of intra-EU BITs and mod­i­fi­ca­tion of extra-EU BITs is like­ly to trig­ger invest­ment struc­tures via third coun­tries like Switzer­land which still have a sol­id net­work of BITs with rel­e­vant EU- and third coun­tries in place.

Against this back­ground the present con­tri­bu­tion analy­ses which min­i­mal nation­al­i­ty require­ments an investor must ful­fil in order to struc­ture for­eign invest­ment via Switzerland.

B. Scope of the Present Analysis

In order to achieve sta­ble Swiss BIT-pro­tec­tion a group of com­pa­nies that is not or not exclu­sive­ly domi­ciled in Switzer­land may want to struc­ture a for­eign invest­ment into a third coun­try via Switzerland.

First Exam­ple:

Sec­ond Example:

In such or sim­i­lar con­stel­la­tions the ques­tion aris­es under which require­ments the Swiss com­pa­ny is qual­i­fied as Swiss investor under an applic­a­ble BIT between Switzer­land and a tar­get country.

The ques­tion whether the Swiss sub­sidiary in the first exam­ple may, in turn, also act as hold­ing com­pa­ny for a fur­ther sub­sidiary in the tar­get coun­try is also an issue in this con­text.⁸

In the sec­ond exam­ple a Swiss hold­ing com­pa­ny is estab­lished as ulti­mate par­ent com­pa­ny of a cor­po­rate struc­ture in order to obtain Swiss BIT-pro­tec­tion.⁹

The present con­tri­bu­tion analy­ses (i) recent prac­tice of arbi­tral tri­bunals on nation­al­i­ty plan­ning and (ii) par­tic­u­lar require­ments which must typ­i­cal­ly be ful­filled for nation­al­i­ty plan­ning via Switzer­land.¹⁰ In con­clu­sion a short ​“invest­ment plan­ning test” is derived from the find­ings of the present analysis.

II. Gen­er­al Remarks regard­ing Nation­al­i­ty Planning

A. Legit­i­ma­cy of Nation­al­i­ty Planning

It is fair to ask whether and to what extent nation­al­i­ty plan­ning, which is some­times also referred to as ​“nation­al­i­ty shop­ping”, is legit­i­mate in the con­text of FDI. In addi­tion to an analy­sis of legal doc­trine it is vital to embrace the posi­tion of the bod­ies that typ­i­cal­ly decide on the nation­al­i­ty cri­te­ri­on agreed upon in BITs, i.e. arbi­tral tri­bunals.¹¹

Lead­ing com­men­ta­tors opine that there is no rea­son why a pru­dent investor should not orga­nize its invest­ment in a way that affords max­i­mum pro­tec­tion under exist­ing treaties.¹² This lib­er­al approach has also been adopt­ed in sev­er­al invest­ment arbi­tra­tion awards that are pub­licly available:

1. In the case Aguas del Tunari v. Bolivia​¹³, the arbi­tral tri­bunal held: ​“The lan­guage of the def­i­n­i­tion of nation­al in many BITs evi­dences that such nation­al rout­ing of invest­ment is entire­ly in keep­ing with the pur­pose of the instru­ments and the moti­va­tions of the State Parties.”​¹⁴ This obser­va­tion is vital for the accu­rate com­pre­hen­sion of BITs. The states which con­clude BITs aim at cre­at­ing an attrac­tive envi­ron­ment for investors and invest­ments. Devel­op­ing states which are typ­i­cal­ly seek­ing for­eign invest­ment do not only accept, but rather aim to achieve that as many investors as pos­si­ble may choose the route via a cer­tain BIT in order to enhance cap­i­tal inflow. The same is true for devel­oped states which also prof­it if investors struc­ture via cor­po­ra­tions in their coun­try by col­lect­ing tax­es and offer­ing finan­cial, legal and oth­er ser­vices. Hence, the oppor­tu­ni­ty of nation­al­i­ty plan­ning appears to be part of the prop­er pur­pose of BITs in general.

2. In the case Soufra­ki v. Unit­ed Arab Emirates​¹⁵, the arbi­tral tri­bunal found that Mr Soufra­ki, who failed to estab­lish his Ital­ian nation­al­i­ty, could have avoid­ed this result by struc­tur­ing his invest­ment via an Ital­ian cor­po­ra­tion.¹⁶ This is a fur­ther clear state­ment in favor of prop­er nation­al­i­ty planning.

3. In the case Salu­ka v. Czech Repub­lic, the arbi­tral tri­bunal did not rely upon the fact that Claimant, a Dutch cor­po­ra­tion, was mere­ly a shell com­pa­ny con­trolled by Japan­ese own­ers as the Czech-Dutch BIT exclu­sive­ly referred to the state of incor­po­ra­tion for deter­mi­na­tion of nation­al­i­ty.¹⁷ The Dutch shell com­pa­ny was thus qual­i­fied to obtain pro­tec­tion under the Czech-Dutch BIT.

These exam­ples demon­strate that arbi­tral tri­bunals have, with good rea­son, relied upon the def­i­n­i­tions of nation­al­i­ty as pro­vid­ed for in the applic­a­ble BITs. There are no indi­ca­tions that inten­tion­al nation­al­i­ty plan­ning would or should be dis­ap­proved. Rather, it appears that the prin­ci­ple of pacta sunt ser­van­da is strict­ly applied by arbi­tral tri­bunals. This con­clu­sion is con­firmed by com­ments of lead­ing schol­ars:¹⁸

“An analy­sis of prac­tice indi­cates that tri­bunals have giv­en effect to the def­i­n­i­tions of cor­po­rate nation­al­i­ty con­tained in BITs. If the require­ments for cor­po­rate nation­al­i­ty under the respec­tive BIT were met, the tri­bunals typ­i­cal­ly refused to sec­ond guess it.”¹⁹

B. Lim­its of Nation­al­i­ty Planning

Against the back­ground of the above find­ings in favour of nation­al­i­ty plan­ning the ques­tion aris­es which lim­its must nev­er­the­less be considered:

Retroac­tive plan­ning: While prospec­tive nation­al­i­ty plan­ning is gen­er­al­ly accept­ed, legal doc­trine main­tains that retroac­tive mea­sures to obtain advan­tages from BITs are not admis­si­ble.²⁰ This posi­tion has also been tak­en by arbi­tral tri­bunals apply­ing dif­fer­ent legal concepts:

1. Phoenix v. Czech Republik:​²¹ After the facts lead­ing to a dis­pute had already occurred, a Czech investor sold an invest­ment to the Israeli com­pa­ny ​“Phoenix”. Phoenix, there­upon, brought action under a Czech-Israeli BIT. The said mea­sure which was only tak­en after the dis­pute had start­ed, led the tri­bunal to the state­ment that Phoenix could only rely on facts which occurred after Phoenix made an invest­ment: ​“The Tri­bunal is lim­it­ed ratione tem­po­ris to judg­ing only those acts and omis­sions occur­ring after the date of the investor’s pur­port­ed investment.”​²²

2. Ban­ro Amer­i­can Resources v. Demo­c­ra­t­ic Repub­lic of Con­go²³ A Cana­di­an com­pa­ny intend­ed to ini­ti­ate ICSID arbi­tra­tion based upon an invest­ment agree­ment with the Demo­c­ra­t­ic Repub­lic of Con­go con­tain­ing a respec­tive arbi­tra­tion agree­ment. How­ev­er, when a dis­pute arose and the Cana­di­an com­pa­ny noticed that only the Unit­ed States, but not Cana­da, were part of the ICSID Con­ven­tion it assigned its claim to an U.S. affil­i­ate who, there­upon, act­ed as Claimant in ICSID arbi­tra­tion. The pub­licly avail­able excerpts of the award show that the arbi­tral tri­bunal dis­ap­proved of this last-sec­ond assign­ment and there­by relied on the legal con­cept nemo plus iuris trans­ferre potest quam ipse habet: ​“Hav­ing nev­er exist­ed for the ben­e­fit of Ban­ro Resource, the right of access to ICSID can­not be viewed as hav­ing been ​‘extend­ed’ or ​‘trans­ferred’ to its affil­i­ate, Ban­ro Amer­i­can”.²⁴

Hence, it may be con­clud­ed that retroac­tive nation­al­i­ty plan­ning (i.e. mea­sures tak­en after the facts lead­ing to a dis­pute have already tak­en place) bears a con­sid­er­able risk of not being accept­ed by arbi­tral tribunals.

Pierc­ing of the cor­po­rate veil in cas­es of fraud or malfea­sance: Pur­suant to var­i­ous invest­ment cas­es and rel­e­vant legal doc­trine, pierc­ing of the cor­po­rate veil is lim­it­ed to cas­es of fraud or malfea­sance which must involve a mis­use of cor­po­rate per­son­al­i­ty.²⁵ At the same time it is express­ly main­tained that struc­tur­ing invest­ments through estab­lish­ment of cor­po­ra­tions in dif­fer­ent juris­dic­tions does not as such con­sti­tute a wrong­do­ing and is thus not a basis for pierc­ing of the cor­po­rate veil.²⁶

C. First Conclusion

In con­clu­sion the fol­low­ing applies:

1. Prospec­tive nation­al­i­ty plan­ning is gen­er­al­ly accept­ed by arbi­tral tri­bunals, if all require­ments of the applic­a­ble BIT are met.

2. Retroac­tive mea­sures (tak­en after the facts lead­ing to a dis­pute have occurred) to obtain BIT-pro­tec­tion and mis­use of cor­po­rate per­son­al­i­ty in cas­es of fraud or malfea­sance form lim­its for free nation­al­i­ty planning.

Con­se­quent­ly, if the nation­al­i­ty require­ments of Swiss BITs with third coun­tries are met and in absence of the nar­row lim­its as men­tioned here­in above, invest­ment plan­ning via Switzer­land is avail­able for for­eign investors.

Against this back­ground, the nation­al­i­ty require­ments of Swiss BITs are ana­lyzed and applied to the ini­tial­ly described group struc­tures.²⁷

III. Require­ments for Invest­ment Plan­ning Via Swiss BITs

A. Swiss Net­work of BITs

The Swiss BIT net­work is offi­cial­ly pub­lished by the State Sec­re­tari­at for Eco­nom­ic Affairs (“SECO”).²⁸ Switzer­land con­clud­ed BITs with the fol­low­ing EU mem­ber states and EU can­di­date states:

1. Bul­gar­ia;
2. Czech Repub­lic;
3. Esto­nia;
4. Hun­gary;
5. Latvia;
6. Lithua­nia;
7. Mace­do­nia;
8. Poland;
9. Roma­nia;
10. Ser­bia;
11. Slo­va­kia;
12. Slove­nia.²⁹

Fur­ther­more, Switzer­land main­tains BITs with over 110 coun­tries world­wide, includ­ing Chi­na, India and Rus­sia.³⁰ It goes with­out say­ing that no gen­er­al state­ments, that are valid for all Swiss BITs, can be made in the following.

Pub­li­ca­tions on Swiss BITs in some instances refer to a so-called ​“Swiss Mod­el BIT”. Fact is, how­ev­er, that the Swiss state con­tin­u­ous­ly amends its stan­dard BIT-claus­es and does not offi­cial­ly pub­lish them for the time being. Con­se­quent­ly, there is no oth­er alter­na­tive than to appre­ci­ate the nation­al­i­ty require­ments of each sin­gle BIT individually.

At the same time, an analy­sis of recent Swiss BITs with EU mem­ber states and EU can­di­date coun­tries as well as a pub­li­ca­tion by Mr MICHAEL SCHMID³¹ on Swiss BITs leads to typ­i­cal require­ments which are rel­e­vant for the present subject:

1. On the one hand a Swiss investor must be orga­nized or incor­po­rat­ed under the laws of Switzer­land.³²

2. On the oth­er hand and par­tic­u­lar­ly in more recent Swiss BITs a ​“real eco­nom­ic activ­i­ty”³³ in Switzer­land is required by the Swiss investor.³⁴

The same cri­te­ria apply in cas­es where a legal enti­ty orga­nized under the laws of a third coun­try is con­trolled by a Swiss enti­ty.³⁵ In such sit­u­a­tions the con­trol­ling Swiss enti­ty must typ­i­cal­ly also be orga­nized under the laws of Switzer­land and demon­strate a ​“real eco­nom­ic activ­i­ty” in Switzer­land.³⁶

So-called ​“denial of ben­e­fits claus­es”³⁷ for enti­ties orga­nized under the laws of Switzer­land and with a ​“real eco­nom­ic activ­i­ty” in Switzer­land which are, how­ev­er, con­trolled by enti­ties or indi­vid­u­als in third coun­tries may exist in spe­cif­ic BITs. How­ev­er, as stat­ed in the ICSID case Tokio Toke­les v. Ukraine​³⁸ it is not for an arbi­tral tri­bunal to read such a clause into the text of a BIT, if it is not express­ly pro­vid­ed for.³⁹

This said the fol­low­ing sec­tions will deal with the typ­i­cal nation­al­i­ty require­ments pur­suant to most Swiss BITs from a Swiss legal per­spec­tive.⁴⁰

B. The Require­ment of an Enti­ty Incor­po­rat­ed under Swiss Laws

The nation­al­i­ty require­ment of incor­po­ra­tion under the laws of a par­tic­u­lar coun­try is com­mon­place in the inter­na­tion­al prac­tice on BITs.⁴¹ The impor­tance of the incor­po­ra­tion require­ment has been con­firmed in the Offi­cial Con­sid­er­a­tions of the Swiss Fed­er­al Coun­cil (“Botschaft des Bun­desrats”) regard­ing BITs con­clud­ed with Ser­bia and Mon­tene­gro⁴². Same as most of the BITs in ques­tion, the BIT with Ser­bia and Mon­tene­gro relies on the laws of the state of incor­po­ra­tion and real eco­nom­ic activ­i­ty in that state.⁴³ In the Offi­cial Con­sid­er­a­tions of the Swiss Fed­er­al Coun­cil it is stated:

“In case of legal enti­ties the qual­i­fi­ca­tion as investors is either derived from the laws of the state where the enti­ty has been incor­po­rat­ed (cri­te­ria of incor­po­ra­tion) and where it has its seat or from rel­e­vant con­trol (cri­te­ria of con­trol⁴⁴, …)”.⁴⁵

The require­ment of ​“real eco­nom­ic activ­i­ty” in Switzer­land is not men­tioned in the Offi­cial Con­sid­er­a­tions of the Swiss Fed­er­al Coun­cil even though it is reflect­ed in the lan­guage of the rel­e­vant BITs.⁴⁶ It fol­lows that at least in the under­stand­ing of the Swiss drafters the require­ment of incor­po­ra­tion was meant to be key for deter­mi­na­tion of the nation­al­i­ty of the investor.⁴⁷

C. The Require­ment of ​“Real Eco­nom­ic Activity”

Con­sid­er­ing the fact that the Offi­cial Con­sid­er­a­tions of the Fed­er­al Coun­cil do not men­tion the sec­ond require­ment, i.e. ​“real eco­nom­ic activ­i­ty” in the state of the investor, the ques­tion aris­es which weight the said cri­te­ri­on should entail.

Mr MICHAEL SCHMID in his pub­li­ca­tion on Swiss BITS expressed the fol­low­ing opinion:

“For legal enti­ties to qual­i­fy as nation­als, their incor­po­ra­tion or organ­i­sa­tion under the laws of a con­tract­ing par­ty is suf­fi­cient. In more recent BITs con­clud­ed by Switzer­land, the require­ment of a real eco­nom­ic activ­i­ty in Switzer­land was added (in order) to exclude mail­box com­pa­nies from BIT cov­er­age.”⁴⁸

It thus appears that the incor­po­ra­tion require­ment is valid and deci­sive as long as a Swiss enti­ty can demon­strate activ­i­ty in Switzer­land which goes beyond mere main­te­nance of a mail­box. This under­stand­ing is con­firmed by the avail­able con­cepts of inter­pre­ta­tions for legal terms in inter­na­tion­al treaties:⁴⁹

1. Ordi­nary mean­ing to be giv­en to terms:​⁵⁰ The Swiss Fed­er­al Tri­bunal found in a case regard­ing inter­na­tion­al tax issues that in absence of ​“admin­is­tra­tion, direc­tion of cur­rent trans­ac­tions and com­pa­ny man­age­ment” in a cer­tain coun­try, there was no real eco­nom­ic activ­i­ty of a com­pa­ny in the said coun­try.⁵¹ It may be con­clud­ed e con­trario that in cas­es of effec­tive ​“admin­is­tra­tion, direc­tion of cur­rent trans­ac­tions and com­pa­ny man­age­ment” in Switzer­land, real eco­nom­ic activ­i­ty in Switzer­land exists.⁵² The said con­clu­sion is also rea­son­able with­out rely­ing on the author­i­ty of the Swiss Fed­er­al Tri­bunal: ​“Admin­is­tra­tion, direc­tion of cur­rent trans­ac­tions and com­pa­ny man­age­ment” com­pris­es actions and thus activ­i­ty as well as eco­nom­ic focus by actu­al­ly deal­ing with busi­ness transactions.
   A com­pa­ny estab­lished in Switzer­land acts through its direc­tors, employ­ees and/​or rep­re­sen­ta­tives. It fol­lows that at least one direc­tor, employ­ee or rep­re­sen­ta­tive must per­form the defined eco­nom­ic activ­i­ty in Switzer­land by e.g. man­ag­ing the for­eign invest­ment through the Swiss com­pa­ny in Switzer­land. Nei­ther the lan­guage in ques­tion nor the def­i­n­i­tion of the Fed­er­al Tri­bunal excludes that the eco­nom­ic focus of the activ­i­ty is lim­it­ed to the han­dling of the for­eign invest­ment. Con­se­quent­ly, a Swiss sub­sidiary in charge of a for­eign invest­ment which is man­aged and admin­is­tered by a direc­tor, employ­ee or rep­re­sen­ta­tive in Switzer­land meets the legal require­ment of ​“real eco­nom­ic activ­i­ty” in Switzer­land.⁵³

2. Object and pur­pose of the treaty:⁵⁴ As already men­tioned above, the main pur­pose of the drafters of the rel­e­vant BITs was to exclude mail­box-com­pa­nies.⁵⁵ Fur­ther­more, the fact that the Offi­cial Con­sid­er­a­tions of the Swiss Fed­er­al Coun­cil regard­ing BITs con­clud­ed with Ser­bia and Mon­tene­gro do not even men­tion the require­ment of ​“real eco­nom­ic activ­i­ty” in Switzer­land leads to the under­stand­ing that this require­ment was not dis­cussed beyond its gram­mat­i­cal meaning.
   With regard to the pur­pose at issue, it is the gen­er­al con­cept behind any BIT to cre­ate an attrac­tive envi­ron­ment for investors. The gen­er­al find­ings in the already men­tioned case Aguas del Tunari v. Bolivia do also apply to BITs between Switzer­land and third coun­tries: It is typ­i­cal­ly the very idea of both state-par­ties to a BIT to attract investors via such BIT.⁵⁶ The rout­ing of an invest­ment via such BIT is thus in the very inter­est of both par­ties to a BIT. There are no indi­ca­tions that Switzer­land intend­ed to restrict invest­ment plan­ning beyond the men­tioned exclu­sion of mail­box com­pa­nies. Hence, the con­cept derived in the gram­mat­i­cal inter­pre­ta­tion is also in line with inter­pre­ta­tion pur­suant to the pur­pose of BITs.⁵⁷

Based on the above inter­pre­ta­tion of ​“real eco­nom­ic activ­i­ty” in Switzer­land it is suf­fi­cient for a for­eign investor to estab­lish a Swiss sub­sidiary with offices and direc­tors, a few employ­ees or rep­re­sen­ta­tives who man­age the com­pa­ny and the for­eign invest­ment in Switzer­land. In the author’s view also sit­u­a­tions of one sin­gle direc­tor, employ­ee or rep­re­sen­ta­tive of the Swiss com­pa­ny who man­ages the Swiss com­pa­ny and the for­eign invest­ment in Switzer­land are qual­i­fied to sat­is­fy the require­ment of ​“real eco­nom­ic activ­i­ty” in Switzerland.

Final­ly, the del­i­cate ques­tion aris­es whether a Swiss com­pa­ny which (i) is domi­ciled in the offices of a Swiss rep­re­sen­ta­tive (with­out any own per­son­nel) and (ii) exclu­sive­ly acts through its Swiss rep­re­sen­ta­tive should be con­sid­ered to per­form any ​“real eco­nom­ic activ­i­ty” in Switzer­land. In the author’s view the answer to this ques­tion depends upon the actu­al posi­tion of the Swiss rep­re­sen­ta­tive: (i) If the Swiss rep­re­sen­ta­tive indeed han­dles ​“admin­is­tra­tion, direc­tion of cur­rent trans­ac­tions and com­pa­ny man­age­ment” in Switzer­land, his activ­i­ties should be ful­ly attrib­ut­able to the com­pa­ny. Con­se­quent­ly, the ​“real eco­nom­ic activity”-requirement would be met.⁵⁸ (ii) If the Swiss rep­re­sen­ta­tive is, how­ev­er, con­fined to for­ward­ing cor­re­spon­dence to the for­eign par­ent com­pa­ny, where the actu­al admin­is­tra­tion takes place, there is a sig­nif­i­cant risk that the mail­box- exclu­sion would be applied by an arbi­tral tribunal.

D. Lim­its of Invest­ment Plan­ning via Switzerland

The gen­er­al lim­its of nation­al­i­ty plan­ning also apply for invest­ment plan­ning via Switzer­land: (i) Lim­its express­ly pro­vid­ed for in a spe­cif­ic BIT (e.g. ​“denial of ben­e­fits claus­es”); (ii) ret­ro­spec­tive nation­al­i­ty plan­ning and (iii) fraud or malfea­sance which involves a mis­use of cor­po­rate per­son­al­i­ty.⁵⁹

Fur­ther lim­its to invest­ment plan­ning via Switzer­land are not apparent.

E. The Swiss Sub­sidiary as Hold­ing Com­pa­ny of Anoth­er Sub­sidiary in the Tar­get Country

With respect to the first exam­ple of a cor­po­rate struc­ture as pro­vid­ed for here­in above⁶⁰, the ques­tion aris­es whether Swiss BIT-pro­tec­tion would gen­er­al­ly be avail­able, if the Swiss sub­sidiary invest­ed via a fur­ther sub­sidiary in the said tar­get coun­try. In such a con­stel­la­tion the Swiss com­pa­ny would have a dou­ble func­tion: On the one hand it would be a sub­sidiary of the Dutch ulti­mate par­ent com­pa­ny.⁶¹ On the oth­er hand and at the same time, it would ful­fill the func­tion of a hold­ing com­pa­ny with respect to anoth­er sub­sidiary in the tar­get coun­try.⁶² It is there­by assumed that the gen­er­al require­ments of incor­po­ra­tion and real eco­nom­ic activ­i­ty would be met with respect to the Swiss company.

The ques­tion may be divid­ed in two sub-ques­tions: (i) Is con­trol of a sub­sidiary in the tar­get coun­try suf­fi­cient to be qual­i­fied as an investor? (ii) If yes, does the fact that the (Swiss) investor is again con­trolled by anoth­er ulti­mate par­ent com­pa­ny (in our first exam­ple by the hold­ing com­pa­ny in the Nether­lands) neg­a­tive­ly affect its qual­i­fi­ca­tion as investor? Both ques­tions must be answered in appli­ca­tion of the indi­vid­ual BITs at issue.⁶³

First sub-ques­tion: The fol­low­ing state­ment of Mr MICHAEL SCHMID is instruc­tive in this respect:

“The Swiss BITs tra­di­tion­al­ly cov­er invest­ments that are con­trolled by Swiss nation­als or legal enti­ties. ​‘Con­trol’ under inter­na­tion­al invest­ment law is a very broad con­cept and can include also minor­i­ty share­hold­ers or man­age­ment respon­si­bil­i­ty. In addi­tion, since the enti­ty can be con­trolled ​‘direct­ly or indi­rect­ly’, invest­ments also held through host state enti­ties or third state enti­ties are cov­ered by the BIT. The recog­ni­tion of (indi­rect) share­hold­ing as a form of invest­ment has made the issue of nation­al­i­ty of a legal enti­ty lose some of its edge.”⁶⁴

Con­se­quent­ly, for most Swiss BITs the first ques­tion is to be answered in the affirmative.

Sec­ond sub-ques­tion: If not pro­vid­ed oth­er­wise in a spe­cif­ic BIT, the fact that a (Swiss) investor, which con­trols an enti­ty in the tar­get coun­try is, in turn, again con­trolled by e.g. a Dutch par­ent com­pa­ny, does not change the legal sit­u­a­tion. This under­stand­ing has been express­ly con­firmed by the already men­tioned invest­ment cas­es Soufra­ki v. Unit­ed Arab Emi­rates and Salu­ka v. Czech Republic.​⁶⁵ In par­tic­u­lar, in the lat­ter case the arbi­tral tri­bunal express­ly accept­ed a con­stel­la­tion in which a ​“shell com­pa­ny” in the Nether­lands has been estab­lished by Japan­ese par­ents exclu­sive­ly to obtain pro­tec­tion of a Dutch-Czech BIT.

Hence, if the Swiss com­pa­ny makes an invest­ment via anoth­er com­pa­ny in the tar­get coun­try, Swiss BIT-pro­tec­tion is usu­al­ly avail­able. Only where such struc­tures are express­ly exclud­ed by a ​“denial of ben­e­fits clause” in a spe­cif­ic BIT, BIT-pro­tec­tion may be denied.⁶⁶

F. Swiss Hold­ing as Ulti­mate Par­ent Company

Final­ly, the ques­tion aris­es whether or not Swiss BIT-pro­tec­tion would, as a rule, be avail­able for struc­tures in which a Swiss hold­ing com­pa­ny con­trols e.g. a Dutch sub­sidiary which, in turn, makes an invest­ment in a tar­get coun­try.⁶⁷ It is again assumed that the gen­er­al require­ments of incor­po­ra­tion and real eco­nom­ic activ­i­ty would be met by the Swiss hold­ing company.

While the answer to the ques­tion may again dif­fer depend­ing on the BIT at issue, it appears that indi­rect con­trol of an invest­ment via a third- coun­try com­pa­ny does, gen­er­al­ly speak­ing, not exclude Swiss BIT-protection:

“In addi­tion, since the enti­ty can be con­trolled ​‘direct­ly or indi­rect­ly’, invest­ments also held through host state enti­ties or third state enti­ties are cov­ered by the BIT.”⁶⁸

More­over, such con­stel­la­tions are express­ly accept­ed in var­i­ous Swiss BITs. As an exam­ple the Swiss BIT with Bul­gar­ia may be quoted:

“For pur­pos­es of this treaty, the term ​‘investor’ refers regard­ing both treaty par­ties to legal enti­ties which are incor­po­rat­ed pur­suant to the laws of a third state or of the oth­er treaty par­ty and con­trolled direct­ly or indi­rect­ly by cit­i­zens of the rel­e­vant treaty par­ty or legal enti­ties, which have their seat in the ter­ri­to­ry of the rel­e­vant treaty par­ty and there devel­op a real eco­nom­ic activ­i­ty.”⁶⁹

It may be not­ed that the require­ment of ​“real eco­nom­ic activ­i­ty” is again express­ly pro­vid­ed for with respect to the (Swiss) hold­ing company.

Con­se­quent­ly, in absence of any lan­guage to the con­trary in the applic­a­ble BIT, the Swiss hold­ing com­pa­ny is enti­tled to BIT-protection.

At the same time it should not be omit­ted that the cor­po­rate struc­ture must be in place at the moment when the facts lead­ing to the dis­pute take place. Oth­er­wise, there is a con­sid­er­able risk that a tri­bunal would not accept BIT-pro­tec­tion due to inad­mis­si­ble retroac­tive nation­al­i­ty plan­ning.⁷⁰

G. Sec­ond Conclusion

A for­eign com­pa­ny that struc­tures an invest­ment in a third coun­try via a com­pa­ny in Switzer­land is in a posi­tion to rely on a Swiss BIT with that third coun­try, if

1. the Swiss legal enti­ty is incor­po­rat­ed pur­suant to the laws of Switzer­land and thus has its seat in Switzerland,

2. at least the com­pa­ny admin­is­tra­tion and man­age­ment of the for­eign invest­ment (or any oth­er oper­a­tions) are effect­ed by direc­tors, employ­ees or rep­re­sen­ta­tives in Switzer­land, and

3. none of the gen­er­al lim­its of nation­al­i­ty plan­ning apply.

IV. Final Con­clu­sion: ​“Swiss Invest­ment Plan­ning Test”

An investor who intends invest­ment plan­ning via Switzer­land should

con­sid­er each item of the fol­low­ing test:⁷¹

1. A Swiss legal enti­ty is incor­po­rat­ed pur­suant to the laws of Switzerland.

2. The Swiss enti­ty makes a for­eign invest­ment into a tar­get coun­try which main­tains a BIT with Switzer­land (includ­ing invest­ments via com­pa­nies in the tar­get coun­try or com­pa­nies in third countries).

3. The Swiss enti­ty actu­al­ly han­dles admin­is­tra­tion, direc­tion of cur­rent trans­ac­tions and com­pa­ny man­age­ment at least with respect to the for­eign invest­ment through direc­tors, employ­ees or rep­re­sen­ta­tives in Switzerland.

4. The Swiss enti­ty is set up as a mea­sure of prospec­tive nation­al­i­ty plan­ning (and not as retroac­tive mea­sure after e.g. a dis­pute has already arisen).

5. No spe­cif­ic agree­ments in the applic­a­ble BIT exclude struc­tur­ing via a Swiss enti­ty (e.g. ​“denial of ben­e­fits clause”).

6. No sit­u­a­tion of mis­use of the Swiss entity’s cor­po­rate per­son­al­i­ty applies.