© The Indian Express Pvt Ltd
Tags:
Journalism of Courage
Two of the four-member European Free Trade Association (EFTA) countries—Switzerland and Liechtenstein—are pushing for a bilateral investment treaty (BIT) with India after the regional trade organisation signed a trade agreement with India in March last year, committing to a $100 billion investment over 15 years.
Initially, a BIT was not part of the discussion, but two of the EFTA countries, Switzerland and Liechtenstein, are now advocating for a treaty after India unilaterally cancelled its old BITs, two people familiar with the development told The Indian Express. Switzerland is the largest trading partner of India among the countries in the EFTA region.
The push for a BIT assumes significance amid a tax-related concern involving Switzerland-headquartered Nestlé. In December last year, Switzerland suspended the Most-Favoured-Nation (MFN) clause in the Double Taxation Avoidance Agreement (DTAA) originally signed between India and Switzerland in 1994.
This decision followed a ruling by the Indian Supreme Court last year, which determined that the DTAA cannot be enforced unless it is notified under the Income Tax Act. As a result, Swiss companies such as Nestlé face higher taxes on dividends.
Notably, India had annulled BITs based on older model texts framed in 1993 after receiving adverse judgments in multibillion-dollar disputes in international courts. To prevent this, the model BIT included the clause “exhaustion of local remedies,” emphasising state rights over investor rights. To be sure, India has now signalled that better protection for foreign investors is on offer for its trade partners as it begins the groundwork to revamp the conservative 2016 model Bilateral Investment Treaty (BIT), which favoured the state over investors in investor-state disputes.
A revamp of the 2016 model BIT was mentioned in the Union Budget after multiple Western trade partners cited burdensome norms during ongoing treaty negotiations. India is currently in talks with the UK and the European Union for an investment treaty.
Ajay Seth, Secretary of the Department of Economic Affairs (DEA), told The Indian Express that groundwork for the BIT revamp has already begun and that the treaty with the UAE, which offers protection for foreign portfolio investors and includes entity-based protection, reflects the new approach towards more investor-friendly investment norms.
