“Taxing Drama-on Retroactive tax disputes”

News 

Cairn energy, a British firm will be getting around 7,900 crore rupees from Indian government. It has won an arbitration proceeding against India regarding the retroactive tax dispute.   

What was this dispute? 

Government of India had introduced a retroactive tax in the year 2012. Accordingly, it pursued proceeding against Vodafone and Cairn energy asking them for paying these taxes retroactively. 

More on the dispute here 

What was has been the result in two disputes? 

Cairn and Vodafone initiated arbitration proceedings against Indian tax authorities and won in late 2020. The Permanent Court of Arbitration also directed Indian government to pay penal damages worth 1.2 billion dollar to Cairn energy. 

Government in return worked out a compromise with Cairn. Under which it will drop all legal proceeding seeking to enforce the arbitration award against India, forgo the damages and indemnify the Government against all future claims or liabilities. 

What is the way forward? 

Government should now try to work swiftly to process their paperwork and preferably remit their dues before the financial year concludes. This is especially necessary to restore some of the damage caused to Brand India. 

India needs to demonstrate greater certainty and predictability across economic policy. This will bolster its credentials as an ideal investment destination.  

Source– This post is based on the article “Taxing Drama-on Retroactive tax disputes” published in The Hindu on 27th Jan 2022.