Updated Dec 24, 2020 | 15:53 IST
Similar to the Vodafone dispute that was decided only months ago, the one between the Indian government and Cairn involves retrospective taxation. Representational image. | Photo Credit: iStock Images
Key Highlights
India s Income Tax department had claimed that Cairn UK had accrued capital gains in excess of Rs 24,500 crore
India s retrospective tax was introduced in 2012 and made any capital gains resulting from the transfer of shares from a foreign entity whose assets were located in India taxable from 1962
The case represents the second successive one that India has lost in the last three months relating to retrospective taxation
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In a major setback, the Indian government has lost an international arbitration case to energy giant Cairn Plc over the retrospective levy of taxes, and has been asked to pay damages worth $1.2 billion (Rs 8,842 crore) to the UK firm. The verdict came on Tuesday night, barely three months after India lost arbitration to Vodafone Plc over the retrospective tax legislation amendment. The Permanent Court of Arbitration at The Hague has maintained that the Cairn tax issue is not a tax dispute but a tax-related investment dispute and, hence, it falls under its jurisdiction. India’s demand in past taxes, it said, was in breach of fair treatment under the UK-India Bilateral Investment Treaty.
India lost the Cairn arbitration case.The case was related to the retrospective tax amendment law and the verdict came late night Tuesday. How did the dispute arise?
Cairn received a notice from the income tax department in January 2014, raising a preliminary assessment of Rs 10,247 crore tax liability relating to the group reorganisation done in 2006, when Cairn UK transfered about 10 per cent shares of Cairn India Holdings to Cairn India.This gave rise to different interpretations on whether the UK-based company made capital gains, preceding an initial public offering (IPO) of shares by Cairn India.In March 2015, the I-T department had contended that Cairn UK made a capital gain of Rs 24,503.5 crore in the internal reorganisation. Cairn Energy in 2015 initiated an international arbitration to challenge retrospective taxation.
Retrospective tax: After Vodafone, India loses Cairn arbitration case
The international tribunal also ruled that India’s demand of $1.2 billion in retrospective tax was “in breach of the guarantee of fair and equitable treatment”. December 24, 2020 3:50:01 am
The Cairn India Ltd. logo is displayed on a sign outside the venue of the company s annual general meeting in Mumbai, India, on Thursday, Aug. 18, 2011. (Photographer: Adeel Halim/Bloomberg)
Cairn Energy Plc won a major relief on Wednesday as the Permanent Court of Arbitration at The Hague ruled that the Indian government’s retrospective tax demand against the global oil and gas major was “inconsistent” with the UK-India bilateral treaty.