India to sign new bilateral treaties in next few months

Source: Business Standard, Jul 19, 2016

New Delhi: India will likely sign a bilateral investment treaty (BIT) within the next few months with the US, Canada or Cambodia. That taxation matters have been kept out of the BIT is not a cause of concern, as the nations with which India is negotiating the agreement have been assured that the provisions under Double Taxation Avoidance Agreement (DTAA) are adequate to provide protection to foreign companies operating here, government sources told Business Standard.

BIT, the model draft of which was cleared by the Union Cabinet in December 2015, is expected to eventually replace the existing bilateral investment protection and promotion agreements (BIPPAs) that India has signed with 72 nations. India will also sign BITs with countries it has had no comprehensive investment agreements with before, including the US.

BIT keeps taxation out of its ambit with the idea that foreign companies finding themselves in a tax row with the government will not be able to invoke the investment treaty their parent country has signed with India, as is the case with BIPPA.

The model BIT states that India or any other country cannot nationalise or expropriate any asset of a foreign company unless the law is followed, is for the public purpose, and fair compensation paid. Public purpose is not defined in any treaty India has signed with other nations. The BIT states that dispute-resolution tribunals, including foreign tribunals, can question ‘public purpose’ and re-examine a legal issue settled by Indian judicial bodies.

“The government is negotiating BIT with a number of countries, including the US, Canada, Australia, Russia, China, New Zealand and Association of Southeast Asian Nations (Asean) nations,” said a senior official aware of the developments. The Asean is a regional grouping comprising Thailand, Cambodia, Laos, Malaysia, Indonesia, Brunei, Singapore, the Philippines, Myanmar and Vietnam.

“The closest we are to wrapping up negotiations is with the US, Canada and Cambodia. So, any one of these could be signed first,” the official said. “The issue of tax not being covered by the treaty is not a contentious one between us and our global partners, as we have assured them fair protection under DTAA,” the person added.

However, the optimism by the government on signing BITs, especially regarding the US, is in contrast with what Richard Verma, US Ambassador to India, had written in a guest column for Business Standard earlier this month.

In his piece titled US seeks more talks on investment treaty, Verma wrote: “In India’s recent model draft BIT, there were departures from the high standards that we had seen in other treaties India had negotiated. The new model actually substantially narrows the scope of investments covered by the treaty and requires that disputes be exhausted in local Indian jurisdictions before alternative investor-state dispute mechanisms can be initiated. We will keep working to narrow our gaps, but today, unfortunately those gaps do prevent us from moving forward and putting in place the kind of structural protections that investors in both our countries have come to expect in international commerce.”

Government officials said that in case of countries with which India has signed BIPPA, first those agreements will be notified as null and void before the new BITs are signed.

British telecom major Vodafone had invoked the India-Netherlands BIPPA, seeking international arbitration in its long-drawn Rs 20,000-crore tax dispute, following the cancellation of conciliation talks. Similarly, Finnish mobile handset maker Nokia resorted to this for resolving the tax department’s claim of liability, existing and anticipated, for seven years from 2006-07. Cairn Energy, too, recently demanded compensation under the ambit of the India-UK BIPPA for the Rs 10,200-crore tax notice slapped on Cairn India.

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