Government to clarify intent of provisions under BIPA

NEW DELHI: The government will issue a joint interpretative statement spelling out the intent behind the provisions of the bilateral investment promotion agreements (BIPAs) retroactively that could have a much wider implication than the controversial retrospective change in the law that is the basis of a tax dispute with Vodafone.

This is a temporary fix until India can renegotiate investment promotion agreements with other countries. The government is already working on a model BIPA towards this end. "These treaties were signed long back...There is a need to define government's intent behind the provisions clearly till we renegotiate all existing treaties," said a finance ministry official.

The committee, tasked with the job to redraft the model text for BIPAs and renegotiate them, is supportive of the move.




The department of economic affairs under the finance ministry, the administrative department in charge of investment agreements, has begun consultations with the law ministry on the proposed move to issue a retroactive clarification.

As many as 17 companies or individuals including Deutsche Telekom of Germany, Vodafone International Holdings BV, Sistema of Russia, Children's Investment Fund and TCI Cyprus Holdings have served notices under investment treaties. Foreign investors have even dragged the Indian government to arbitration on the cancellation of telecom licences by the Supreme Court in 2012.

India has already lost an international arbitration involving White Industries of Australia.

The retrospective clarification two years back on the taxation of overseas transfers of Indian assets, largely aimed at Vodafone's purchase of the Indian telecom business of Hutchison Essar, spooked foreign investors and dampened the investment climate. India then sought to reassure foreign investors by opting for reconciliation with Vodafone to settle the case.

Still, the retroactive clarification is not likely to be as controversial.

The Vienna convention, the international pact that governs international relations, allows retroactive interpretation of a treaty jointly by signatories. India, however, will have to get its treaty partners on board before it issues the clarification, a task that is not going to be easy.

Experts backed the move, saying it would bring certainty for foreign investors. "These treaties were signed long back and if both treaty partners come to the table to explicitly state their intent, it should bring about clarity and certainty for investors," said Sanjay Sanghvi, partner, Khaitan & Co.

The official cited earlier said financial markets have, over time, seen increasing product innovation and new practices that make this clarification of intent imperative.

The statement could also clarify that these pacts do not cover taxation issues.

Vodafone has served a notice to New Delhi under the India-Netherlands BIPA on the taxation case despite the government's repeated claims that the pact does not cover taxation issues.

BIPAs are agreements that seek to promote bilateral investment flows by assuring fair and equitable treatment to investments on post-establishment basis through reciprocal provisions such as national treatment, most-favoured nation treatment and mechanism for dispute resolution.