{"id":127098,"date":"2021-08-18T20:15:31","date_gmt":"2021-08-18T14:45:31","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=127098"},"modified":"2021-08-19T19:01:34","modified_gmt":"2021-08-19T13:31:34","slug":"a-bit-for-fdi-on-the-need-to-renew-bipa","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/a-bit-for-fdi-on-the-need-to-renew-bipa\/","title":{"rendered":"A BIT for FDI (On the need to renew BIPA)"},"content":{"rendered":"

Source:<\/span><\/b>\u00a0\u00a0Business Standard<\/span>\u00a0<\/span><\/p>\n

Relevance<\/span><\/b>:\u00a0Taxation laws in India, Issues with BIT<\/span>\u00a0<\/span><\/p>\n

Synopsis<\/span><\/b>: Repeal of retrospective tax law gives government the opportunity to renew the 70-odd Bilateral Investment and Protection Agreements (BIPA)<\/a><\/span><\/span><\/p>\n

Impacts of BIT and retrospective taxation<\/strong><\/h5>\n

BIT and retrospective taxation increased international arbitration cases.<\/p>\n

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  1. First, India has never been comfortable recognizing investments from abroad when they are\u00a0<\/span>asset-based. <\/span><\/b>It sought to promote an\u00a0<\/span>\u201centerprise\u201d based definition\u00a0<\/span><\/b>for greenfield\u00a0investment as a more suitable example of foreign direct investment (FDI).\u00a0<\/span>\u00a0<\/span><\/li>\n
  2. Second, issue of\u00a0<\/span>national\u00a0treatment<\/span><\/b>, which\u00a0the department of economic affairs in the finance ministry notes, should be the\u00a0<\/span>sole non-discrimination standard <\/span><\/b>to be applied to all companies investing in India. <\/span>To qualify for it, companies have to demonstrate they have a permanent business establishment in India, as well as agree to some new yardsticks such as data localization and sourcing requirements. If they do not do so, there could still be problems for investors to invoke BIT<\/a><\/strong><\/span> to protect their interests.\u00a0<\/span><\/li>\n<\/ol>\n
    Evolution of BIT policy<\/span><\/b><\/h5>\n
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    1. From 1993, India began to sign International Investment Agreements.\u00a0Less importance was given to the consequences of these agreements\u00a0as\u00a0India needed the foreign money.\u00a0<\/span>\u00a0<\/span><\/li>\n
    2. In 2011,\u00a0in\u00a0<\/span>White Industries of Australia and Coal India\u00a0case, <\/span><\/b>the arbitration went in favour of the Australian firm.\u00a0<\/span>\u00a0<\/span><\/li>\n
    3. In July 2012, the government set up a committee to review these agreements\u00a0which recommended\u00a0for a\u00a0<\/span>uniform BITs regime<\/span><\/b>\u00a0that India should adopt with all countries.\u00a0<\/span>\u00a0<\/span><\/li>\n
    4. But as\u00a0per\u00a0United Nations Conference on Trade and Development noted, the new framework was not designed \u201cas an instrument for investment promotion\u201d.\u00a0It\u00a0was drafted to\u00a0<\/span>safeguard India as a host State<\/span><\/b>\u00a0from the large number of investment treaty claims.<\/span>\u00a0<\/span><\/li>\n
    5. The model BIT with the retrospective law\u00a0allowed the government to tax\u00a0indirect transfers of an Indian capital asset.\u00a0Foreign investors have argued that the rights of punitive taxation<\/strong> written in the BIT are\u00a0similar\u00a0to expropriation<\/span><\/strong><\/a>.\u00a0<\/span>\u00a0<\/span><\/li>\n<\/ol>\n

      The Indian tax department had argued there can be no restriction in its power of taxation.\u00a0Now by 2018, India had the largest number of international arbitration cases.<\/span>\u00a0<\/span><\/p>\n

      Why India needs to renew\u00a0BIPA?<\/span><\/b>\u00a0<\/span><\/h5>\n

      1].<\/strong> First, countries <\/span>assure foreign investors<\/span><\/b>\u00a0when inviting their investment that their administrations will provide tax certainty. If that certainty comes unstuck, BIPA comes into play.\u00a0<\/span>\u00a0<\/span><\/p>\n