MUMBAI: The government has kept tax matters out of the ambit of a new draft bilateral investment treaty to avoid arbitration with multinational companies that may receive tax notices from India, as it looks to prevent situations similar to the Vodafone and Cairn tax matters.
One of the key proposals is that if India deems a certain dispute to be tax-related, companies at the receiving end cannot invoke the treaty in international arbitration to seek relief or compensation.
The new treaty is expected to replace the existing bilateral investment protection and promotion agreements. The draft is in the public domain to invite suggestions from the general public till April 10.
The new treaty, once it is complete, is expected to be signed with all the countries India has bilateral investment treaties with. India has signed BIPAs with 72 nations. It has signed but not enforced BIPAs with an additional 11 nations.
Among some other conditions, the treaty will not apply to “any taxation measure. Where a host state asserts as a defence that conduct alleged to be a breach of its obligations under this treaty is a subject matter of taxation, any decision of the host state, whether before or after the commencement of arbitral proceedings, shall be non-justiciable and it shall not be open to any arbitration tribunal to review any such decision”.
British telecom major Vodafone had invoked the India-Netherlands BIPA, seeking international arbitration in its long-drawn Rs 20,000-crore tax dispute with the tax department, following the cancellation of conciliation talks.
Similarly, Finnish mobile handset maker Nokia resorted to the treaty to resolve the tax department’s claim of tax liability, both existing and anticipated, for seven years from 2006-07.
Cairn Energy Plc, too, recently demanded compensation under the ambit of the India-UK Bilateral Investment Promotion and Protection Agreement from India for the Rs 10,200-crore tax notice slapped on Cairn India.
