Investment Liberalization Treaty and Direct Taxation: Focusing on the European Court of Justice's ruling in the Cadbury Schweppes case

Bilateral or multilateral trade and investment agreements have strengthened the ties among national economies all over the world. Against this backdrop, direct taxation of each country may influence or distort cross-border investment flows between or among the countries participating in such agreements. The European Union succeeded in establishing its Internal Market and has already achieved a very high level of economic integration among its Member States. In the process of leading to such integration, the EU has been facing various issues that stem from continuous tension between investment liberalization and national direct taxation. As a result, the EU has accumulated a great deal of fruitful experience in finding a solution to such issues. This paper will examine the famous Cadbury Schweppes ruling by the European Court of Justice on the relationship between the right of establishment in the EC Treaty and direct taxation of the Member State, in order to find some implications for Japan.