There is little doubt that New Delhi will demand a more thorough and expansive exclusion of taxation provisions if the now stalled FTA talks gain momentum.
Author
Prabhash Ranjan, Professor and Vice Dean, Jindal Global Law School, O.P. Jindal Global University, Sonipat, Haryana, India.
Summary
There is an intimate connection between a country’s sovereign right to tax and its international law obligations under investment treaties. Over the years, foreign investors have brought numerous claims against States challenging taxation measures as alleged breaches of investment treaties before investor-State dispute settlement (ISDS) tribunals. This includes the investment treaty claims brought about by companies such as Cairn, Vodafone, and Vedanta against India due to the imposition of retroactive taxes. Owing to the increasing number of such claims, several countries have started carving out taxation measures from the ambit of investment treaties, as highlighted in a recent report of the Vidhi Centre for Legal Policy, an independent think tank, and BMR Legal, a law firm.
India is one such country whose stated position, as evident from the 2016 model Bilateral Investment Treaty (BIT), is that all taxation measures are excluded from the scope of any investment treaty, that is, a tax measure cannot breach investors’ rights under a particular treaty. Furthermore, to completely oust the jurisdiction of an ISDS tribunal, the 2016 Model BIT provides that the host State has the sole discretion to determine whether a contested measure under the BIT pertains to taxation. Also, such a determination is non-justiciable, that is, it cannot be arbitrated before an ISDS tribunal.
Published in: Hindustan Times
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