Indian Express | April 3, 2015
Draft bilateral investment pact keeps tax disputes, contracts out of arbitration
Written by Surabhi | New Delhi
The finance ministry has drafted a fresh bilateral investment protection treaty that would keep taxation measures and issuance of compulsory licences for intellectual property rights out of the sphere of arbitration while preventing foreign investors to drag India to arbitration for any dispute that has already been settled by the courts.
The move comes at a time when the country is involved in a number of disputes with foreign firms including tax arbitration with Vodafone and Nokia. In March this year, Cairn Energy had filed a notice of dispute against India’s income tax department on a $ 1.6 billion tax claim.
A number of global telecom firms have also slapped notices on the government for breach of bilateral investment protection pacts after their 2G licenses were taken away following a Supreme Court ruling.
The draft text has also proposed excluding any commercial contract or agreement between domestic and foreign investor for an investment outside the purview of the bilateral pact.
“The objective of the Indian Model Bilateral Investment Treaty text is to provide appropriate protection to foreign investors in India and Indian investors in a foreign country, in light of the relevant international precedents and practices, while maintaining a balance between the investor’s rights and the government obligations,” said the finance ministry while inviting public comments on the draft treaty. While the ministry has sought comments on the draft treaty by April 10, sources said that it will then finalise the treaty and take it to the Union cabinet for approval. Once cleared, the new treaty is likely to be signed with the US, for which negotiations are still on.
At present, India has signed 83 bilateral trade and promotion agreements, of which 72 are in force.
“Investors and their investments must comply with the provisions of host state’s law on taxation including timely payment of their tax liabilities in accordance with the law of the host state,” the draft text has stressed.
The treaty, which would be in force for a 10-year period once signed, has also proposed a dispute settlement tribunal which investors can go to but only when all local remedies have been exhausted. Such claim must be submitted within one year from the date on which the Investor or Investment first acquired, it has suggested, putting in a limitation of three years since the investment was acquired for arbitration proceedings.
Significantly, the draft text has also suggested barring both the disputing parties from expropriating or nationalising any investment unless done by India for reasons of “public purpose” such as land acquisition.