{"id":120204,"date":"2021-07-21T20:15:38","date_gmt":"2021-07-21T14:45:38","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=120204"},"modified":"2021-07-21T20:15:38","modified_gmt":"2021-07-21T14:45:38","slug":"for-cairns-dispute-international-arbitration-is-not-the-way-forward","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/for-cairns-dispute-international-arbitration-is-not-the-way-forward\/","title":{"rendered":"For Cairns dispute, international arbitration is not the way forward \u00a0"},"content":{"rendered":"<p><strong>Source: <\/strong><span style=\"color: #0000ff;\"><a style=\"color: #0000ff;\" href=\"https:\/\/indianexpress.com\/article\/opinion\/columns\/for-cairns-dispute-international-arbitration-is-not-the-way-forward-7414260\/\">Indian Express<\/a><\/span><\/p>\n<p><strong>Relevance<\/strong>: Various dimensions of the Cairn issue<\/p>\n<p><strong>Synopsis: <\/strong>The recent move by Cairn to seize India\u2019s sovereign assets has many grey areas of law that need due consideration.<\/p>\n<h5><strong>Background:<\/strong><\/h5>\n<p>Britain\u2019s Cairn Energy Plc has secured an order from a French court authorizing the<a href=\"https:\/\/forumias.com\/blog\/cairn-says-it-has-got-court-nod-to-attach-20-indian-assets-in-paris\/\" target=\"_blank\" rel=\"noopener\">\u00a0freezing of 20 Indian government properties in Paris<\/a> valued at over 20 million euros.<\/p>\n<h5><strong>Evolution of Bilateral Investment Treaties:<\/strong><\/h5>\n<ul>\n<li>After the World Wars countries tended to look at foreign investments as a form of <strong>neo-colonialism. <\/strong><\/li>\n<li>For many years, policies in developing countries turned inward-looking.<\/li>\n<li>As a result, developed countries sought to <strong>guard their investments against expropriation.<\/strong><\/li>\n<li>Bilateral investment treaties became the primary tool to forge relationships between developed and developing countries.<\/li>\n<li>Some argue that the US signed BITs mainly to adopt standards for prompt, adequate and effective compensation in case of expropriation.<\/li>\n<li>With the advent of globalisation, BITs became the means for foreign investment in developing countries.<\/li>\n<\/ul>\n<h5><strong>Issues with International arbitration:<\/strong><\/h5>\n<ul>\n<li>Firstly, <strong>the question is about the jurisdiction of the International Arbitration Tribunal<\/strong> as the most appropriate forum to preside over a matter pertaining to tax planning.\n<ul>\n<li>Taxing offshore indirect transfers, a structuring device to gain tax advantage from the indirect sale of assets is <strong>not unique to India<\/strong> (336 tax treaties contain such an article).<\/li>\n<\/ul>\n<\/li>\n<li>Secondly, <strong>retrospective tax is challenged on grounds of denial of fair and equitable treatment<\/strong>.\n<ul>\n<li>\u00a0In 2012, the Indian\u00a0<strong>government then retrospectively amended the tax code<\/strong>, giving itself the power to go after\u00a0<strong>mergers and acquisitions(M&amp;A) deals all the way back to 1962 if the underlying asset was in India<\/strong>.<\/li>\n<li>But the <strong>principle, retrospective amendments are not unusual.<\/strong><\/li>\n<li>For example, in the UK such an amendment was introduced in 2008 to check the use of avoidance arrangements via the Isle of Man.<\/li>\n<\/ul>\n<\/li>\n<li>Thirdly, the <strong>option of arbitration<\/strong> upon an unsuccessful Mutual Agreement Procedure (MAP) resolution is <strong>not available in India.<\/strong>\n<ul>\n<li>Even when the OECD published its multilateral instrument for tax treaty amendment, India reserved the application of binding arbitration.<\/li>\n<\/ul>\n<\/li>\n<li>Fourthly, <strong>many developing countries view arbitration of tax matters as a breach of their sovereign right to tax. <\/strong>\n<ul>\n<li>Taxation of cross-border incomes is resolved either through domestic dispute mechanisms or by competent authorities appointed to agree on an outcome not binding on the taxpayer.<\/li>\n<\/ul>\n<\/li>\n<li>Lastly, <strong>all investments have tax implications and the acceptance of distinction could create problems<\/strong> even where tax is explicitly carved out from the bilateral investment treaties.\n<ul>\n<li>Over the years, there has been a rising trend in tax disputes involving BITs.<\/li>\n<li>The Cairn case is one such instance where arbitration was invoked especially since MAP was not an option.<\/li>\n<li>The UK-India tax treaty allowed for taxation of capital gains as per Indian law. India challenged the admissibility of the case before the arbitration tribunal.\u00a0However, the case rests on a distinction between tax and tax-related investment.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<table style=\"border-collapse: collapse; width: 100%;\">\n<tbody>\n<tr>\n<td style=\"width: 100%;\"><strong>Read more<\/strong>: <a href=\"https:\/\/forumias.com\/blog\/cairn-energy-dispute-and-indias-disputes-with-private-entities\/\" target=\"_blank\" rel=\"noopener\">Cairn Energy dispute and Government disputes with private entities \u2013 Explained, pointwise<\/a><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Hence, given the complexity, the only reasonable solution would be a <strong>negotiated settlement<\/strong>. Even if there\u2019s a resolution in the Cairns case, questions of law would remain.<\/p>\n<p><strong><span class=\"TextRun BCX0 SCXW41746018\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"auto\"><span class=\"NormalTextRun BCX0 SCXW41746018\">Terms to know<\/span><\/span><span class=\"TextRun BCX0 SCXW41746018\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"auto\"><span class=\"NormalTextRun BCX0 SCXW41746018\">:\u00a0<\/span><\/span><\/strong><\/p>\n<ul>\n<li><a class=\"Hyperlink BCX0 SCXW41746018\" href=\"https:\/\/forumias.com\/blog\/income-tax-act\/\" target=\"_blank\" rel=\"noreferrer noopener\"><span class=\"TextRun Underlined BCX0 SCXW41746018\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"none\"><span class=\"NormalTextRun BCX0 SCXW41746018\" data-ccp-charstyle=\"Hyperlink\">Income Tax Act<\/span><\/span><\/a><span class=\"EOP BCX0 SCXW41746018\" data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<li><a href=\"https:\/\/forumias.com\/blog\/what-is-retrospective-taxation\/\" target=\"_blank\" rel=\"noopener\">Retrospective taxation<\/a><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Source: Indian Express Relevance: Various dimensions of the Cairn issue Synopsis: The recent move by Cairn to seize India\u2019s sovereign assets has many grey areas of law that need due consideration. Background: Britain\u2019s Cairn Energy Plc has secured an order from a French court authorizing the\u00a0freezing of 20 Indian government properties in Paris valued at&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/for-cairns-dispute-international-arbitration-is-not-the-way-forward\/\">Continue reading <span class=\"screen-reader-text\">For Cairns dispute, international arbitration is not the way forward \u00a0<\/span><\/a><\/p>\n","protected":false},"author":10316,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[3251,8400,221,216],"class_list":["post-120204","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-arbitration","tag-cairn","tag-economy","tag-gs-paper-3","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704737650},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/120204","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10316"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=120204"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/120204\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=120204"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=120204"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=120204"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}