Economic Times | 4 Mar, 2014
Lessons from Vodafone tax case: Govt to rewrite BIPA to exclude taxation, intellectual property right issues
By Deepshikha Sikarwar, ET Bureau
India has readied a new draft to negotiate bilateral investment treaties in the future, keeping taxation and intellectual property right issues out of its ambit.
NEW DELHI: India has readied a new draft to negotiate bilateral investment treaties in the future, keeping taxation and intellectual property right issues out of its ambit.
The new draft for bilateral investment promotion agreements (BIPA) draws on the learning from the ongoing tax dispute with British telecom firm Vodafone and an adverse ruling in an arbitration case against Australian firm White Industries two years ago.
As per the proposed draft, foreign investors can only invoke BIPA with the country from where they invest into India and not the one with their parent country. "The idea is that only that treaty should be invoked which governs the investment," said an official privy to the discussions on the new draft, which is being circulated for inter-ministerial consultations.
Vodafone, which routed its investment into India through a Mauritius entity, has challenged the Indian government under the India-Netherlands BIPA. It is also insisting on international arbitration in its multi-billion dollar tax case with India.
As many as 17 companies and individuals, including Deutsche Telekom, Germany, Vodafone International Holdings BV, Sistema of Russia, Children’s Investment Fund and TCI Cyprus Holdings, served notice to India under BIPA after their investments ran into trouble in India or after facing adverse policy action.
In 2012, London-based International Arbitration Tribunal had ordered India to pay White Industries around 50 crore for breaching its bilateral treaty with Australia, after the Australian firm approached it over inordinate delay in Indian courts due to challenges to a ruling in its favour.
India has 83 BIPAs at present.
New Delhi has begun exploratory talks with the US for an investment agreement and the new text will form the basis for formal negotiations.
There is a feeling in the government that the BIPAs need to be tightened to protect India’s interest.
The new draft, once approved by Cabinet, will be the template for negotiation of future BIPAs and for renegotiation of those that come up for renewal.
The model BIPA, prepared by the Committee of Secretaries, also seeks to provide an exception for actions and awards of judicial bodies.
Many investors have challenged the legality of the Supreme Court decision regarding cancellation of telecom licences. These notices brought bad publicity to the government and maligned the investment climate.
The committee has also suggested deletion of a key clause that helped White Industries win the arbitration in its dispute with Coal India when it invoked the India-Australia BIPA.