Definition of Investor

The report analyzes how broad definitions of investor nationality in bilateral investment treaties (BITs) allow transnational companies to engage in 'treaty shopping'—the practice of acquiring a specific nationality to gain access to more favorable legal protections or international arbitration. It examines three primary nationality criteria: place of incorporation, head office, and control, noting that the incorporation criterion is particularly susceptible to the creation of 'mailbox' companies. The author distinguishes between pre-dispute treaty shopping, which arbitration tribunals generally tolerate as legal planning, and post-dispute restructuring, which is often rejected as an abuse of rights. To mitigate these risks, the report recommends that states adopt stricter, cumulative nationality criteria (such as combining incorporation with substantial business activity) and implement automatic 'denial of benefits' clauses.

• Treaty shopping occurs when investors seek the most advantageous protection of a BIT by acquiring the nationality of a state that is not their own, often using 'mailbox' companies that have no independent business activity or staff.
• The 'place of incorporation' criterion is a common but weak method for determining nationality, as it can be based on a tenuous link, such as a postal address, which encourages treaty shopping. The Netherlands is cited as a frequent hub for this practice due to its use of incorporation as a sole criterion in over 105 BITs.
• The 'control' criterion allows for the 'piercing of the corporate veil' to identify the true nationality of capital, but it is often applied only to favor the investor, allowing the attribution of a signatory state's nationality to companies from third-party states or local companies.
• Arbitration tribunals generally view pre-dispute treaty shopping as a legitimate legal strategy, refusing to look beyond the formal incorporation of a company even when it is controlled by nationals of the host state.
• Post-dispute treaty shopping—restructuring an investment after a dispute has arisen to gain treaty protection—is typically rejected by tribunals as an 'abuse of rights' or 'abuse of procedure'.
• Denial of benefits clauses allow states to exclude investors who lack genuine business ties to the home state, but their effectiveness is limited when they are 'non-automatic' or discretionary, as tribunals may require the state to notify the investor of the denial at the start of the investment.
• To prevent unintended access to international arbitration, the report recommends that states use cumulative nationality criteria, such as requiring both incorporation and substantial business activities, and implement automatic denial of benefits clauses.

APA

Nikièma, S. H. (2012). Definition of Investor. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/best_practices_definition_of_investor.pdf

Chicago

Nikièma, Suzy H. Definition of Investor. International Institute for Sustainable Development, 2012. https://www.iisd.org/system/files/publications/best_practices_definition_of_investor.pdf.

Wikipedia

{{cite report |last1=Nikièma |first1=Suzy H. |title=Definition of Investor |publisher=International Institute for Sustainable Development |date=March 2012 |url=https://www.iisd.org/system/files/publications/best_practices_definition_of_investor.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{nikima2012definition, author = {Nikièma, Suzy H.}, title = {{Definition of Investor}}, institution = {International Institute for Sustainable Development}, year = {2012}, month = mar, url = {https://www.iisd.org/system/files/publications/best_practices_definition_of_investor.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }