Finance ministry firm on defending `flawed’ Cairn tax arbitration award

The finance ministry said Cairn was abusing international tax treaties that are meant to prevent the same income getting taxed in two countries to get away with not paying taxes in either of the countries.

The arbitration panel improperly exercised jurisdiction in a national tax matter and that the Indian government will defend its case vigorously worldwide the ministry said in a formal statement. 

The ministry, however, assured it remains committed to an amicable resolution to the dispute within Indian laws.

The ministry also refuted news agency reports claiming that state-owned banks have been asked to withdraw funds from foreign accounts in view of Cairn Energy’s move to enforce the arbitration award, calling suh reports as “totally incorrect," and “not based on true facts."

“The government of India has strongly condemned the false reporting in certain media by some vested interests claiming that the government of India has purportedly asked state-owned banks to withdraw funds from foreign currency accounts abroad in anticipation of the potential seizure of such accounts with regard to the Cairn legal dispute," the statement said.

India, the ministry said, filed an application in The Hague Court of Appeal on 22 March 2021 to set aside “the highly flawed December 2020 international arbitral award". It is contesting the award-- $1.2 billion in damages plus interest and cost won by Cairn—saying that the arbitral tribunal improperly exercised jurisdiction over a national tax dispute that the India never offered or agreed to arbitrate.

“…The claims underlying the award are based on an abusive tax avoidance scheme that were a gross violation of Indian tax laws, thereby depriving Cairn’s alleged investments of any protection under the India-UK bilateral investment treaty..," the ministry stated.

It also said that the award “improperly ratifies Cairn’s scheme to achieve double non-taxation, which was designed to avoid paying taxes anywhere in the world, a significant public policy concern for governments worldwide."

Double non-taxation is the corporate practice of abusing tax treaties that are meant to prevent the same income getting taxed in two countries to get away with not paying taxes in either of the countries.

India’s tax dispute with Cairn is over an internal re-organisation of the company’s India business in 2006-07 prior to its initial public offer. The tax demand was raised invoking a 2012 change in the Income Tax Act that was retroactive.

The finance ministry said the legal proceedings were pending. “The government is committed to pursuing all legal avenues to defend its case in this dispute worldwide."

It also said that Cairn’s chief executive officer and representatives have approached the Indian authorities for discussions to resolve the matter. “Constructive discussions have been held and the government remains open for an amicable solution to the dispute within the country’s legal framework," the statement added.