AFRENCH court order allowing Cairn Energy to seize 20 Indian government assets in central Paris, including luxury apartments for VIPs visiting for an arbitration award of $ 1.7 billion surprised many. More surprising, however, is the Treasury Department’s statement that it had received no notification and was trying to investigate facts even though India was open to an amicable settlement of the dispute within the country’s legal framework. The dispute began in 2014 when UK energy giant Cairn received a Rs 10,247 billion tax bill for the group’s restructuring in 2006, when the Indian government claimed the company had made a capital gain of Rs 24,503 billion. Cairn filed for international arbitration in The Hague to challenge the retroactive tax. The Indian government has been awarded $ 1.2 billion plus costs and interest of $ 1.7 billion.
A similar award was made last year by The Hague Permanent Arbitration Court when it ruled that India’s retrospective claim of Rs 22,100 billion in capital gains and withholding tax imposed on Vodafone on a deal in 2007 was against the guarantee of fairer equality. After Vodafone won a case in the SC in 2012, Parliament amended the law to re-file the tax claim against the telecommunications company, forcing it into international arbitration.
Parliament has the power to legislate for the introduction of retroactive taxes. But when such powers are used to invalidate a court ruling, it harms the business environment and discourages potential investors. Such relentless pursuit of corporate tax liability, even after court / arbitration judgments in their favor, runs counter to the government’s obligation to eradicate “tax terrorism” and has a negative impact on the investment climate. Given that India’s growth has been hampered during the Covid pandemic and the country needs foreign direct investment to fuel its development and create jobs, it would be better to end uncertainty about India’s tax system to gain investor confidence strengthen.