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Increasing regulation of the TMT sector

The technology, media and telecommunications (TMT) sector is steadily and robustly growing globally. Given the social and economic significance of this sector, there is an increasing trend towards tougher regulation by governments around the world driven in particular by concerns relating to national security, consumer protection and fair competition and also with a goal of increasing tax revenues from the sector.  

Measures being taken by governments can and do include:

  • Banning or restricting platforms, services, products, and operators.
  • Imposing taxes and levying fines.
  • Nationalising TMT assets or operations.

The importance of investment protection

When countries introduce or change regulations, your investments may be adversely impacted. Where those investments are protected under international law by investment treaties or agreements, foreign investors may have rights of recourse in the case that regulations or other measures are arbitrary, discriminatory or otherwise in breach of investment protection standards or commitments.

How do treaties protect investments?

Investment protection standards are set out in bilateral, regional or multilateral agreements or treaties, for example bilateral investment treaties (BITs), cooperation and partnership agreements and free trade agreements.

Investment treaties generally contain a range of substantive protections to investors of one state party (the home state) who have an investment in another state party to the treaty (the host state).

Critically, these treaties or agreements often also include the right for a protected investor to bring international arbitration proceedings against the host State in case a dispute arises regarding measures taken by the host State which affect a protected investment.

What substantive protections available?

The precise protections that are available will depend on the terms of the particular treaty. However, common substantive protections include:

  • Protection against expropriation without the payment of prompt, adequate and effective compensation: This includes direct expropriation of an investment (i.e., the taking of investor’s property) by a state, and indirect expropriation where the taking is not outright, but government measures have the indirect effect of substantially destroying the investment’s value.
  • Fair and equitable treatment: This is a broad standard and may be interpreted to include the right to due process and procedural fairness, the preservation of an investor’s legitimate expectations, offering a predictable and stable legal framework, and preventing arbitrary or discriminatory treatment.
  • National and most-favoured nation treatment: This requires the host state to treat foreign investors no less favourably than it would treat its own investors or investors of any other nation.
  • Full protection and security: The host state is required to adopt reasonable measures to protect the investor's investment from physical, and in some cases commercial and legal, harm.
  • Umbrella clauses: The right to have the host state observe contractual obligations it, or state-controlled entities, may have towards an investor.

How to ensure that your investments are protected

To obtain investment protection, there needs to be a treaty in place between the investor’s home state and the host state.

Where there is no such treaty or agreement in place, or if it does not provide sufficient protection, an investor should consider whether it can obtain access to more favourable protection by carefully structuring its investment. This is usually done by investing through a corporate entity domiciled in a third state.

Typically, strategic structuring of investments to maximise BIT protection takes place at the time the investments are made. It is therefore prudent to consider structuring for investment protection at the same time as other structuring considerations, such as tax.

There may also be cases where an investor has reasons for wanting to secure or enhance protection after an investment has been made. Whether or not it is possible to do so depends on when the restructuring occurs. Treaty protection may be denied to an investor that has restructured its investment after a dispute has arisen solely in order to obtain protection in relation to that dispute. It is often difficult to determine precisely when in a dispute arises. Consequently, it is advisable to carry out any restructuring as soon as possible if any need to rely on investment protection is anticipated.

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Changes to the global geopolitical landscape is driving increased regulation of TMT operations. TMT operators or investors should, when doing business abroad, be alive to these issues and take proactive steps to mitigate the relevant risks through availing themselves of – and enforcing – investment treaty protections.

Key contacts

Andrew Cannon photo

Andrew Cannon

Partner, Global Co-Head of International Arbitration and of Public International Law, London

Andrew Cannon
Dr Patricia Nacimiento photo

Dr Patricia Nacimiento

Partner, Germany

Dr Patricia Nacimiento
Antony Crockett photo

Antony Crockett

Partner, Hong Kong

Antony Crockett
Hannah Ambrose photo

Hannah Ambrose

Partner, London

Hannah Ambrose
Marco de Sousa photo

Marco de Sousa

Partner, New York

Marco de Sousa
Imogen Kenny photo

Imogen Kenny

Senior Associate, Melbourne

Imogen Kenny

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Africa Middle East Europe Australia Americas Asia Technology, Media and Entertainment, and Telecommunications Foreign Direct Investment Technology Transactions Corporate Technology, Media and Telecommunications Tech Regulation Andrew Cannon Dr Patricia Nacimiento Antony Crockett Hannah Ambrose Marco de Sousa Imogen Kenny