Foreign investors had reason to cheer recently when the government said it would repeal a retroactive tax law on share sales of foreign companies with domestic assets
The immediate reason for the repeal reflects the government’s desire to save itself from embarrassment overseas, rather than a dramatic conversion to an open approach to foreign investment. The tax law has led to legal headaches at home and abroad. Two big companies have successfully disputed their retrospective bills in international courts, but the government has not complied with the rulings, leading one of them to take some drastic steps.
The government also found itself wrong-footed in a long-running dispute with Vodafone, a mobile-phone company, which won an arbitration award in The Hague last year. The disputed transaction relates to its purchase in 2007 of Hutchison Essar, an Indian phone network . The repeal of the tax offers the government a way to end such legal tussles without facing the indignity of a company repossessing its assets around the world.
In 2015 the country adopted a new template for its bilateral investment treaties that limited the rights of foreign investors to pursue international settlements, in the hope that existing agreements could be renegotiated along the same lines. But the renegotiations have not borne much fruit. According to theConference on Trade and Development, India has signed 86 bilateral investment treaties since the mid-1990s; 74 have been terminated, almost all within the past five years.
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