Taxation is traditionally considered a key manifestation of state sovereignty, as it is through tax mechanisms that the state ensures the formation of public finances, the redistribution of resources, and the implementation of socio-economic functions. Changes in tax legislation and aggressive tax administration can affect the property interests of investors so significantly that they raise the question of whether they qualify as indirect expropriation of capital. Based on a study of international arbitration practice, methods for assessing ordinary regulatory measures and those applicable to taxation are identified: (1) the "effects test" (assessment based on the impact of intervention), (2) the "police powers test" (assessment of the permissibility of regulation) in its radical and qualified versions, and (3) the case-by-case and cumulative approaches as a method for assessing the totality of circumstances. The conclusions reached and the proposed recommendations are aimed at developing a more predictable and balanced model of the relationship between tax sovereignty and international investment protection. Shifting the emphasis from the formal nature of a tax measure to the mechanism of its implementation enables a more precise distinction between permissible taxation and tax expropriation and reduces the risk of arbitrary decisions in international arbitration practice.