Updated: December 23, 2020 12:33:35 pm
Worker cycles by machinery at Cairn India, Barmer oil and gas exploration plant in Rajasthan. (Photo via Bloomberg)
The Permanent Court of Arbitration in The Hague has ruled that the Indian government it was wrong when applying the retroactive tax on Cairn. In its ruling, the international arbitration court said that the Indian government must pay approximately 8 billion rupees in damages to Cairn.
What is the dispute about?
Like VodafoneThis dispute between the Indian government and Cairn is also related to retrospective taxation. In 2006-07, as part of an internal reorganization, Cairn UK transferred shares from Cairn India Holdings to Cairn India. The income tax authorities then were content that Cairn UK had made capital gains and slapped it with a tax claim of Rs 24.5 billion. Due to different interpretations of capital gains, the company refused to pay the tax, prompting the filing of cases before the Income Tax Appeal Court (ITAT) and the Superior Court. While Cairn had lost the case at ITAT, a capital gains valuation case is still pending before the Delhi High Court.
In 2011, Cairn Energy sold the majority of its business in India, Cairn India, to the mining conglomerate Vedanta. However, the tax authorities did not allow Cairn UK to sell a smaller stake of around 10%. The authorities had also confiscated Cairn India’s shares, as well as the dividends the company paid to its UK parent company.
What has the arbitral tribunal said?
In its ruling, the Permanent Court of Arbitration in The Hague said that the Cairn tax issue was not just a tax-related issue, but an investment-related dispute, and therefore under the jurisdiction of the international arbitration court.
Like the ruling in the Vodafone arbitration case, the CPA in The Hague has once again ruled that the Indian government’s retrospective claim “violated the guarantee of fair and equitable treatment.” You have noted that Cairn UK’s argument that the claim was made after Vodafone’s retrospective tax lawsuit, which has since been overturned by Indian courts.
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