Taxation of foreign investments is a key regulatory exercise in every sovereign State. Inasmuch as it is not “designed to effect a dispossession outside the normative constraints and practices of the taxing powers”, the right to tax foreign investments is also a legitimate regulatory exercise. Investment treaty arbitration (ITA) tribunals often examine whether taxation measures by host States are discriminatory, confiscatory and/or tantamount to expropriation in the light of applicable standards under a vast network of international investment agreements (IIAs). Drawing on its drafting background and interpretation by arbitral tribunals, this paper aims to explore and shed light on the significance, scope and application of the “carve-out” mechanism on taxation under Article 21 of the Energy Charter Treaty (ECT).