Cairn tax blow: India must walk the talk on ease of doing business
India must necessarily consider a policy change that aligns with the promises made by this government and repeal the retroactivity in the application of the indirect transfer provisions Ritesh Kumar December 24, 2020 / 08:27 PM IST
The retrospective tax law enacted in 2012 is coming back to haunt India. On Wednesday, an international arbitration tribunal ruled that India’s tax demand from Cairn Energy Plc is in breach of ‘fair and equitable treatment’ guaranteed under the bilateral investment treaty. The court also ordered New Delhi to compensate Cairn for the total harm suffered and pay $1.2 billion, that is roughly Rs 8,800 crore, in damages.
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.
Cairn wins arbitration ruling against India in tax dispute: What is this case?
Like Vodafone, this dispute between the Indian government and Cairn also relates to retrospective taxation. Written by Aashish Aryan , Edited by Explained Desk | New Delhi | Updated: December 29, 2020 9:09:19 am
Worker cycles by machinery at Cairn India, Oil and Gas exploration plant at Barmer in Rajasthan. (Photo via Bloomberg)
The Permanent Court of Arbitration at The Hague has ruled that the Indian government
was wrong in applying retrospective tax on Cairn. In its ruling, the international arbitration court said that Indian government must pay roughly Rs 8,000 crore in damages to Cairn.