Cairn Energy to withdraw cases as Govt agrees to refund Rs.7,900 cr retro tax
The Government of India and the multinational oil company Cairn Energy settle their long-standing tax dispute, months after the government has withdrawn the controversial retrospective tax act. According to the Finance Ministry officials, the government has accepted Cairn’s offer and will withdraw cases and the government will refund Rs.7900 crores seized during the retro tax regime.
Meeting the requirements of the new legislation that scraps levy of retrospective taxation, the company had earlier this month given required undertakings indemnifying the Indian government against future claims as well as agreeing to drop any legal proceedings anywhere in the world. The Finance Ministry has now accepted this and issued Cairn a so-called Form-II, committing to refund the tax collected to enforce the retrospective tax demand, two sources with direct knowledge of the development said.
Following the issuance of Form-II, Cairn will now start withdrawing all cases in international courts. Once this is complete, the company will be issued an Rs.7,900 crores refund, they said, adding the withdrawal of cases may take up to three-four weeks, confirming the top officials of both sides.
Seeking to repair India’s damaged reputation as an investment destination, the government in August enacted new legislation to drop Rs.1.1 lakh crore in outstanding claims against multinationals such as telecom group Vodafone, a pharmaceuticals company Sanofi and brewer SABMiller, now owned by AB InBev, and Cairn. About Rs,.8,100 crores collected from companies under the scrapped tax provision are to be refunded if the firms agreed to drop outstanding litigation, including claims for interest and penalties. Of this, Rs.7,900 crores are due only to Cairn.
PGurus reported in detail how the Government of India failed in all cases at International Tribunals.[1]
Cairn’s undertaking furnished in Form No.1 under the rule 11UE(1) of the amended law has been accepted by the Principal Commissioner for Income Tax, said Finance Ministry’s senior officials. In August 2021, through legislation canceled a 2012 policy that gave the tax department power to go back 50 years and slap capital gains levies wherever ownership had changed hands overseas but business assets were in India. The 2012 legislation was used to levy a cumulative of Rs.1.10 lakh crore of tax on 17 entities, including UK telecom giant Vodafone, but nearly 98 percent of the Rs.8,100 crores recovered in enforcing such a demand was only from Cairn.
The international arbitration tribunal in December 2020 overturned a levy of Rs.10,247 crores in taxes on a 2006 reorganization of Cairn’s India prior to its listing, and asked the Indian government to return the value of shares seized and sold, dividend confiscated and tax refund withheld. This totaled USD 1.2 billion, plus interest and penalty. The Government of India initially refused to honor the award, forcing Cairn to identify USD 70 billion of Indian assets from the US to Singapore to enforce the ruling, including taking flag carrier Air India Ltd to a US court in May. A French Court in July paved the way for Cairn to seize real estate belonging to the Indian government in Paris. All these litigations will now be dropped, said, officials.
References:
[1] Why does India lose in International Arbitration Forums? After Vodafone, Cairn Energy wins 1.4 billion dollars (around Rs.10,400 crores) in tax case – Dec 25, 2020, PGurus.com
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