No proposal from Cairn to settle tax dispute: Govt

By: |
August 03, 2021 3:00 AM

Referring to the meetings finance ministry officials and Cairn Energy CEO Simon Thomson and his team in February for an amicable settlement of the dispute, finance minister Nirmala Sitharaman had earlier said, “I want to see how best we can solve the issue”.

Instead of warming up to the government proposal, Cairn seems to be following its declared plan to recover $1.7-billion dues from New Delhi by attaching assorted Indian assets overseas, including real estate and Air India planes.Instead of warming up to the government proposal, Cairn seems to be following its declared plan to recover $1.7-billion dues from New Delhi by attaching assorted Indian assets overseas, including real estate and Air India planes.

Despite the government’s offer to settle the tax dispute with Cairn Energy under Vivad Se Vishwas (VSV) scheme, the UK-based firm seems to have stayed away from such an amicable solution to the vexed issue.

“No formal proposal for a solution within the country’s legal framework has been received in this regard,” minister of state for finance Pankaj Chaudhary told the Lok Sabha in a written reply on Monday.

Referring to the meetings finance ministry officials and Cairn Energy CEO Simon Thomson and his team in February for an amicable settlement of the dispute, finance minister Nirmala Sitharaman had earlier said, “I want to see how best we can solve the issue”.

Even though the government has challenged an international arbitration award in favour of Cairn, it also urged the firm to settle the dispute using the VSV; under the scheme, the company will have to pay around half the amount due sans interest and penalties in cases where the tax department has lost a case in a forum and filed an appeal, as the instant one.

Instead of warming up to the government proposal, Cairn seems to be following its declared plan to recover $1.7-billion dues from New Delhi by attaching assorted Indian assets overseas, including real estate and Air India planes.

Weeks after Cairn secured a French court order to seize about 20 Indian government properties worth `177 crore in Paris, the government confirmed the development last week and said it had roped in an international law firm to handle the enforcement proceedings.

The properties in question mostly comprise flats used by the Indian government establishment in France. This followed a December 2020 international arbitration award overturning levy of Delhi’s retrospective taxes.

However, Cairn is on record saying it was keeping the options open for a conciliatory settlement of the tax dispute with the Indian government. Calling the France episode a “necessary preparatory step” towards taking up the ownership of the properties, a company spokesperson recently said that the firm still preferred to reach an “agreed, amicable settlement” with New Delhi to close the matter.

If the company manages to attach the Central Paris properties, it will be the first asset freeze application to succeed among many filed by Cairn in different countries to enforce the arbitration award.

Even before the arbitral award was pronounced, India had seized and sold shares of Cairn in its erstwhile India unit, confiscated dividend due and withheld tax refunds (totalling Rs 7,600 crore) to recover the taxes it felt were due.

Delhi’s 2012 law empowering itself to make tax demands concerning cross-border deals all the way back to 1962 citing ‘underlying Indian assets’ was exposed as a misadventure for the second time in a little over three months, on December 24, 2020.

On that day, the Permanent Court of Arbitration at The Hague not only invalidated India’s $2.74-billion 2015 tax claim on Cairn Energy Plc, but also ordered the government of India to return up to $1.4 billion in funds withheld, interest and costs, to the firm.

The government, of course, filed an application in The Hague court on March 22, 2021, seeking the setting aside of the arbitral award that favoured Cairn. However, since the tribunal has affirmed its jurisdiction over the Cairn case despite the existence of the India-UK bilateral investment treaty, the chances of a reversal of the order in a review is remote. Virtually, a reversal is possible only if mala fide in the award is established.

The Cairn tax dispute arose as in 2006-07, as a part of internal rearrangement through a firm in European tax haven of Jersey, Cairn UK transferred shares of Cairn India Holdings to Cairn India. Later, India retrospectively raised a demand of capital gains tax on Cairn UK.

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