Bilateral Investment Protection Agreement, or BIPA, is the understanding between two countries for mutual promotion and protection of investments. In recent times, due to various socio-economic reasons, the importance of BIPAs is growing. India has signed more than 80 such agreements, of which more than 70 are operational.
BIPA applies to the “investment” made by an “investor” of one contracting party (the signing country) in the territory of the other. BIPA benefits can be claimed by an “investor” who could be a national of a signing country, or a legal person incorporated in that country. Further, “investments” is widely defined to include everything that one expects in a multinational’s business — movable or immovable property, shares and other securities, contractual rights, intellectual property rights, concessions for prospecting, research and exploitation of natural resources, and so on.
The agreement provides that each contracting party shall promote in its territory investments by an investor of the other contracting party. Further, equitable treatment shall be provided to such investments. BIPA provides for National and Most Favoured Nation (MFN) treatment. Thus a contracting party should treat investors of the other party as favourably as it would treat its own, or investors of any other country. Similar treatment is required for the “returns” on the investments. This does not apply to benefits under certain obligations arising from other international agreements or regional cooperation agreements. Similarly, matters pertaining to taxation are excluded from National and MFN treatment.
Investments by investors of either contracting party shall enjoy full protection in each other’s territory. Investments by investors of either country in the other’s territory shall not be expropriated, nationalised or subject to other measures equivalent to expropriation or nationalisation. Such expropriation or nationalisation is possible only in accordance with law, on a non-discriminatory basis and against prompt compensation. The compensation should be linked to the market value of the investments, and the investor also has the right to seek judicial review of the compensation. Each contracting party shall assure investors of the other party the free transfer of all funds related to the investment.
A detailed mechanism is available for settlement of disputes — the Arbitral Tribunal for disputes between the contracting parties; and the International Arbitration for disputes between an investor and a contracting party. Recently, Vodafone considered arbitration under BIPA for its tax dispute with Indian revenue authorities.
As a result of a volatile economic or political environment or other reasons, investments by an investor of one country in another may be adversely affected. Recent instances include GMR losing an airport contract in Maldives, freezing bank accounts in Cyprus, and scrapping of telecom licences among others. It may be possible to get some protection in some cases and, accordingly, BIPA becomes relevant when investing in another country and thereafter. It is understood that recently Etihad’s investment in Jet Airways was kept on hold as BIPA between India and UAE was insisted upon.
The author is Director – Tax & Regulatory Services, PwC India