Cairn for quick deal, no negotiation period

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New Delhi | Published: March 25, 2015 1:10:58 AM

Cairn Energy has asked the government to withdraw the tax demand as well as compensate it for damages sustained...

Cairn Energy, cairn energy india, cairn energy plc, cairn energy tax dispute, cairn energy tax, cairn energy tax issue, Simon Thomson, Arun Jaitley, Arun Jaitley news, Finance Minister Arun JaitleyUnder the terms of the UK-India treaty that Cairn Energy has invoked, the company and the government of India are required to enter a ‘period of negotiations to seek a resolution to the dispute’.

Cairn Energy has asked the government to withdraw the tax demand as well as compensate it for damages sustained — the taxman attaching $1 bn of Cairn India shares in January 2014 caused Cairn Energy’s share price to fall 43% as it could no longer meet its investment commitments. Cairn has asked for the arbitration to be fast-tracked and waiver of the good-faith negotiations period.

Cairn Energy’s request, after the taxman issued it a tax demand for R10,247 crore, is significant since the other case where the government has been taken to an international arbitration — by Vodafone, in April 2014, under the India-Netherlands BIPA — has not even reached the stage of arbitration with the two sides still in dispute over the appointment of the presiding arbitrator.

Under the terms of the UK-India treaty that Cairn Energy has invoked, the company and the government of India are required to enter a ‘period of negotiations to seek a resolution to the dispute’. Sources said Cairn’s view is that a quick outcome would be in the best interests of both parties — while a quick outcome would help Cairn Energy get back its 184 million Cairn India shares, it would also help India regain international investor sentiment.

Cairn Energy said “the Republic of India’s actions breach several of its obligations under the UK-India Investment treaty” including under Article 3 to “create favourable conditions” and to ensure “fair and equitable treatment” and “full protection and security” for Cairn’s investments by introducing unfair and arbitrary tax obligations through the retrospective tax legislation of 2012.

Cairn Energy has also said India’s actions are in breach of Article 5 which says investments will not be expropriated — in this case, Cairn Energy’s shares were attached. India is also said to be in breach of Article 7 since it restricted the transfer of Cairn’s investments.

While it is not clear whether the government will accede to Cairn’s request for early arbitration, finance minister Arun Jaitley has gone on record several times to acknowledge the adverse effects of the retrospective tax.

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