Compensation or Competitive Advantage? Reconciling Investment Arbitration with EU State Aid Law

International investment law and EU State aid law have clashed on multiple occasions, most famously in the Micula case but also in disputes over subsidies in the renewable energy sector. In the view of the European Commission, investors should not be able to use investment arbitration to obtain compensation for the withdrawal of unlawful State aid, as this would jeopardize the effectiveness of EU State aid law. For this reason, the Commission has intervened in numerous investment arbitrations, arguing that investors cannot have legitimate expectations in respect of State aid that was granted in violation of EU law, and that any compensation awarded by a tribunal in such circumstances would also constitute State aid. This article argues that while EU State aid law should inform an assessment of the investor’s legitimate expectations, tribunals need to conduct a comprehensive evaluation that also considers other relevant factors, such as the respondent State’s representations and the foreseeability of the State aid qualification. If a tribunal determines that an investor was entitled to legitimate expectations despite EU State aid law, any compensation awarded by the tribunal should be accepted as damages that fall outside the scope of EU State aid law. In this way, a conflict between the two fields of law, which only encourages investors to seek enforcement outside the European Union, can be avoided.