1. Centre seeks to tighten tax rules

Centre seeks to tighten tax rules

The government feels it can cope with the challenges of a flurry of arbitration notices from multinational companies by insisting that...

By: | New Delhi | Published: August 20, 2015 12:50 AM

The government feels it can cope with the challenges of a flurry of arbitration notices from multinational companies by insisting that tax issues are outside the scope of international arbitration and amending bilateral treaties to reduce investors’ leeway for such remedies. While an inter-ministerial panel is believed to soon take a call on how to respond to Cairn’s international arbitration notice regarding a retrospective tax demand on its 2007 recast of Indian assets, analysts say the the best way for it to resolve the imbroglio was to repeal such retroactive laws.

As for investors, they have preferred international arbitration not only for resolving tax disputes but also for enforcement of contractual rights with state-owned companies. In some cases, the arbitration route was used by some global investor funds to seek damages for losses caused by alleged mismanagement by India’s state-owned companies. Policy flip-flops can also lead to arbitration. Many investors, for instance, had planned to go for international arbitration after the Supreme Court had cancelled 2G telecom licences in 2012 but have so far refrained from doing so.

The government maintains that taxation is a sovereign function and hence outside the purview of international arbitration. It also wants to renegotiate the bilateral investment protection agreements with trading partners to specifically exclude taxation from their scope. It is planning to tighten the eligibility norms for the BIPA cover by including compliance with all domestic laws and payment of all taxes due as a precondition.

Apart from the cases listed in the table, domestic arbitration is going on in cases relating to oilfield production sharing contracts with companies like HOEC, Videocon Industries, GEEC, SELAN Technologies, Hardy Exploration & Production India, Canoro Resources, British Petroleum Exploration (Alpha), British Gas Exploration and Production India, Assam Company India and Ravva Oil Singapore.

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