Retrospective Taxation: Cairns Issue

Why in News?
Cairn Energy has asked the Government of India to resolve the retrospective taxation case. It has threatened to begin attaching Indian assets including bank accounts in different world capitals in case of non-resolution.

Background:

• The Permanent Court of Arbitration ruled in Dec. 2020 that the Indian government was wrong in imposing a retrospective tax on Cairn. It also asked the Indian government to pay for the damages to Cairn.
• Finance Ministry had said the government would study the verdict. It will take any action only after that.

Further Reading on Cairns Issue

What has Cairns said now?

• Now, Cairns has said that in case of inaction by India, it may take an extreme step such as attaching Indian assets including bank accounts in different world capitals.
• It has also cited clauses in the U.K.-India Bilateral Investment Treaty and the New York Convention to which India is a signatory.

Retrospective Taxation:

• It allows a country to pass a rule on taxing certain products, items, or services. This taxation is applied to the companies from a previous date i.e. before the date on which the law is passed.
• Countries correct anomalies in their taxation policies in the past by this step.
• Many other countries like the USA, the UK, the Netherlands, Canada, Belgium, Australia, and Italy have retrospectively taxed companies.

New York Convention:

• United Nations diplomatic conference adopted this convention in 1958 and entered into force in 1959.
• The Convention’s principal aim is that foreign and non-domestic arbitral awards will not be discriminated against. It obliges Parties to ensure such awards are recognized and generally capable of enforcement in their jurisdiction in the same way as domestic awards.

Source: The Hindu