Sudden tax changes impact investments; foreign investors should be treated at par with domestic firms: Switzerland State Secretary for Economic Affairs

Many countries are seeking shorter timeframes to resolve investor-state disputes within India. What is your stance?

I cannot give you a specific timeframe, but for us, it is clear that an international dispute settlement mechanism is a last resort. We fully support the principle that investors must go through the national courts first.

In modern BITs, for example, we recognise the right to legislate. If the Indian government decides to change regulations in a way that affects all companies—both Indian and foreign—equally, then we have no issue with that. However, if a Swiss investor is being disadvantaged, and new rules or decisions are specifically targeted at foreign investors, a Swiss investor, or a single company, then we believe the national legal system should handle the matter first. As a last resort, there should be the option of an international decision.

Whether I personally agree with India on the BIT is not so important. What India needs to do is convince international investors. A capital-intensive investor will be aware of the conditions in India, Europe, the US, Australia, and the UK and will make an informed decision accordingly. India needs to convince not only Swiss investors but the entire international investment community, who, of course, have other options.

However, I get the sense that the current government understands this. They have assured us they are willing to sit down and negotiate with renewed impetus. And in these negotiations, we may also need to be pragmatic on our side.

How do you view the regulatory changes in India in the context of BITs?

If the Indian government, parliament, or cabinet approves a legislative change that applies to all companies operating in India, I don’t think the Swiss government would have an issue with that. We call this the right to legislate. The same can happen in Switzerland. What is crucial, however, is that there is no disadvantage or discrimination—against foreign direct investors in particular. That is the core principle of BITs.

Now, if you suddenly change your tax regime without prior indication, that will naturally impact investment decisions—not only for Swiss companies but also for Indian and other foreign firms. That is, of course, India’s sovereign decision. If the Indian Parliament decides to change the tax structure, so be it. But the key point is not whether I think the BIT model is right—it is whether the business community is convinced. Business decisions can go against your country, so it is important not to make mistakes. The same applies to Switzerland.

India is revamping its model BIT like India-UAE pact. What is your take on it?

It is difficult to comment on the BIT with the UAE. For us, it is important to sit down and discuss the BIT. I understand that India’s model text is evolving, but that should not prevent negotiations. That was our primary message.

We have over 100 BITs, so we have considerable expertise in negotiating them. In our experience—this applies not just to India but to other countries—many BITs are outdated, having been in place for 20 or more years. Countries now want to modernise them, and we have no issue with that. One key update concerns the right to legislate, which was not explicitly included in some of our older BITs. Our team is currently busy modernising them.

However, a new trend we are seeing—and this is something we would not be comfortable with—is the introduction of extensive carve-outs before negotiations even begin. Some countries inform us from the outset that they want exclusions in specific sectors. That is not how negotiations should work. You need to sit down and see how far you can get. Towards the end of negotiations, you can always count on Swiss pragmatism.