India Suspends UK Bilateral Investment Treaty Due to Taxation and MFN Disputes

India Puts Bilateral Investment Treaty with UK on Hold Amid Disagreements

India and the UK have put a proposed bilateral investment treaty (BIT) on the back burner due to disagreements over Britain's push for the most-favoured-nation status (MFN) and tax concessions. Despite this development, New Delhi continues negotiations with at least five other partners, including the European Union and Saudi Arabia.

The impasse in BIT talks comes even as both sides signed a free trade agreement (FTA) in July 2025, with the deal expected to come into force around May this year. The pause in BIT negotiations is attributed to India's insistence on excluding taxation from bilateral investment treaties, as well as concerns over the inclusion of MFN status.

According to a senior government official, India is likely to stick to its stance of excluding taxation from BITs as it negotiates such pacts with trading partners. The official stated that taxation is a sensitive area, and India cannot compromise on its sovereignty to accommodate investor claims through arbitration on tax matters.

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India's model BIT seeks to balance investor protection with sovereign regulatory powers, while excluding certain sensitive areas such as taxation, subsidies, and government procurement to preserve policy space. The government's emphasis on sovereignty is aimed at retaining full control over fiscal policy and avoiding investor claims through arbitration on tax matters.

India's reluctance to include MFN provisions in investment pacts is also driven by concerns that these can allow investors to claim more favourable terms from other treaties, increasing potential liabilities for the host country. The ongoing negotiations with several countries, including the European Union, Bahrain, and the Maldives, reflect India's commitment to promoting and protecting investments while preserving its sovereignty.