Editorial: Cairn, not able

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Published: April 20, 2015 12:21:44 AM

Government’s game plan is getting more unclear

The government’s stance on existing tax disputes is getting more confusing by the day. While finance minister Arun Jaitley justified not removing the retrospective tax clause from the statute last year by saying all existing tax notices were being either arbitrated or tried in court, revenue secretary Shaktikanta Das is on record saying tax disputes cannot be arbitrated under the bilateral investment treaty (BIT)—indeed the new BITs specifically rule out tax disputes. In which case, how is a company like Cairn—both Cairn Energy Plc of UK and Cairn India have been issued tax notices—to deal with its tax demand? Cairn Energy Plc has issued an arbitration notice—indeed, it wanted the government to forego the 6-month period of ‘good-faith’ negotiation and simply move to arbitration—while Cairn India has approached the Delhi High Court. Does this mean that Cairn Energy, and even Vodafone, will have to withdraw their arbitration claims and approach the Indian tax redressal system and the courts; in the case of Vodafone, all over again? There is, in any case, no clarity on whether a foreign arbitral award will even be implemented and, if other cases like Reliance Industries are anything to go by, the government is constantly delaying appointing of arbitrators.

If using the retrospective tax wasn’t bad enough, the taxman has asked Cairn India to deposit R3,000 crore of tax upfront and to provide a bank guarantee of a similar amount while the R20,494 crore tax demand case is being heard. If, as the government itself recognises, the tax demand has arisen out of using the retrospective tax law—one that the NDA criticised so much when it was in opposition—how can it ask Cairn to deposit funds prior to the case being decided by court? What makes the Cairn case more unfortunate is that Cairn Energy Plc was actually just transferring the assets held by it in other countries to the newly set up Cairn India. There was no money that changed hands, indeed for all practical purposes, this was like FDI being brought into the country. In both the Vodafone (not the main Vodafone case) and Shell cases, the Bombay High Court just dismissed the taxman’s attempt to tax what was essentially FDI being brought in by these firms into their local subsidiaries. If Jaitley was serious about his statement at the Peterson Institute for International Economics in Washington—that taxpayers will be seen as “partners and not as potential hostages or victims”—he needs to do something about what looks like doublespeak by the government.

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