The new Bilateral Investment Treaty (BIT), which will be used as a model for negotiating and renegotiating investment pacts with countries, will ensure that no decision taken by the government with regard to taxation matters is dragged into arbitration.
The BIT, which replaces the earlier model agreement of 1993, explicitly stipulates that the treaty will not apply to government procurement, subsidies, services supplied in the exercise of governmental authority.
The model text of BIT, which has been uploaded on the Finance Ministry website, said it will not apply on “any law or measure regarding taxation, including measures taken to enforce taxation obligations”.
The revised BIT was approved by the Union Cabinet last month. The Finance Ministry had revised the BIT in the backdrop of several overseas companies invoking bilateral pacts to contest tax demands raised by India.
The model BIT also excludes matters such as compulsory licences granted in relation to intellectual property rights to preserve the regulatory authority of the government.
“The new Indian model BIT text will provide appropriate protection to foreign investors in India and Indian investors in the foreign country in light of relevant international precedents and practices while maintaining a balance between the investor’s rights and the government obligations,” the government had said in a statement.
The revised model BIT will be used for renegotiation of existing BITs and negotiation of future BITs and investment chapters in Comprehensive Economic Cooperation Agreements (CECAs)/Comprehensive Economic Partnership Agreements (CEPAs) /Free Trade Agreements (FTAs).
The BIT, it is hoped, would increases the comfort level and boosts the confidence of investors by assuring a level- playing field and non-discrimination in all matters while providing for an independent forum for dispute settlement by arbitration.
It would also help project India as a preferred foreign direct investment (FDI) destination as well as protect out-bound Indian FDI.
The essential features of the model BIT include an enterprise-based definition of investment, non-discriminatory treatment, protections against expropriation, a refined Investor State Dispute Settlement (ISDS) provision requiring investors to exhaust local remedies before commencing international arbitration, and limiting the power of the tribunal to awarding monetary compensation alone.
The government has so far signed BITs with 83 countries, which have been largely negotiated on the basis of the Indian Model BIT of 1993.