Tag: Cairn Energy

India has till mid-April to appeal against Cairn award; challenge only on limited grounds – Times of India

[ad_1]

Read More/Less


NEW DELHI: India has time till mid-April to file an appeal against an international arbitration tribunal ordering it to repay UK’s Cairn Energy Plc $1.2 billion-plus interest and cost, but the challenge can only be on limited grounds such as procedure not being followed.
The award from a three-member tribunal at the Permanent Court of Arbitration at The Hague invalidating India’s Rs 10,247 crore tax claim on Cairn Energy and ordering the government to return the value of shares it had sold, dividends seized and tax refunds withheld, was registered in the Netherlands on January 8, two people aware of the matter said.
The registration of the arbitration award was acknowledged by New Delhi on January 19, they said adding an appeal against the award can be filed in 90-days of those two dates.
Under Dutch law, the grounds for setting aside an arbitral award are extremely narrow, tax experts said.
An arbitral award may only be set aside if the panel had not followed due process such as not giving enough opportunity to either side to present their case.
In the Cairn arbitration case, the tribunal, which constituted of one neutral judge and the other two being named by Cairn and India, concluded formal hearings and submissions in 2018 and allowed parties to make written counter-arguments for more than a year thereafter and for months studied claims and counterclaims before delivering the judgment on December 21, 2020.
They said the award, under Dutch law, can also be set aside on grounds of there being no valid arbitration agreement, rules for the composition to the tribunal not being observed, tribunal exceeding its mandate, the award not being signed or not reasoned, and the order or the manner in which it is arrived at is contrary to public policy or public morals.
The Cairn award runs into 582 pages giving detailed reasons as to how the company wasn’t in violation of any prevalent law when it 2006-07 it reorganised its India business prior to its listing, and how the government used a 2012 retrospective tax legislation to raise the tax demand.
Finance minister Nirmala Sitharaman had earlier this month indicated of government’s intent of appealing against the award on grounds of it questioning the sovereign powers of India to levy taxes.
Her ministry feels taxation is not a subject of bilateral investment treaties, like the UK-India Bilateral Investment Treaty under which Cairn had sought rescinding of the tax demand raised, and so the award should be appealed.
It is of the opinion that Cairn set up a tax abusive structure and did not pay taxes anywhere in the world on the gains that it made in India, they said adding India had made an unsuccessful case of tax not being part of the treaty before the arbitration panel as well.
The arbitration award specifically made it clear the base of the judgment was not a challenge to the 2012 law or India’s sovereign right to tax.
“The issue at stake is thus not a matter of domestic tax law, it is rather whether the fiscal measures taken by the state, valid or not under its own tax laws, violate international law,” the tribunal had said in a unanimous verdict.
The Hague panel found that a 2012 law passed by the Indian Parliament was a new tax, not a clarification of prior law that could be applied to earlier years.
Tax experts said the award may be revoked if after the award is made it is discovered that the order was based on fraud committed during the arbitral proceedings or was based on forged documents, or a party obtained documents that would have had an influence on the tribunal and which were withheld as a result of acts of the other party.
Cairn has moved courts in nine countries to enforce the award against India. The award has already been recognised by courts in the US, the UK, Netherlands, Canada and France and the same is in the process in Singapore, Japan, the United Arab Emirates and the Cayman Islands.
The registration of the award is the first step towards its enforcement in the event of the government not paying the firm.
Once the court recognises an arbitration award, the company can then petition it for seizing any Indian government assets such as bank accounts, payments to state-owned entities, airplanes and ships in those jurisdictions, to recover the monies due to it, sources said.

[ad_2]

READ FULL ARTICLE HERE

Leave a comment , , , , ,

The Hindu Explains | How is the Indian government planning to respond to the Cairn tax ruling?

[ad_1]

Read More/Less


What is the Cairn tax dispute about? What did the Permanent Court of Arbitration rule in December 2020?

The story so far: In December 2020, a three-member tribunal at the Permanent Court of Arbitration in the Netherlands ruled against India in its long-running tax dispute with the U.K.-based oil and gas company Cairn Energy Plc and a subsidiary, Cairn UK Holdings Ltd. The tribunal ordered India to pay about $1.4 billion to the company. Following this, Cairn Energy has successfully moved courts in five countries, including the United States and the United Kingdom, to recognise its claim as per the arbitration award, according to PTI. The Netherlands, France, and Canada are the other three countries. Such a recognition by courts opens the door for Cairn Energy to seize assets of the Indian government in these jurisdictions by way of enforcing its claim, in case the latter doesn’t pay its dues.

What is the dispute about?

The dispute started in early 2014 when Indian tax authorities started questioning Cairn Energy requesting information on the group’s reorganisation in the financial year 2006-07. This escalated, and by 2015, the authorities had sent the company a draft assessment order, assessing in the process that there was a principal tax amount of $1.6 billion that was due.

Also read | India filing appeal against Cairn arbitration award, say sources

The year in reference, 2006-07, was one in which big corporate changes and developments took place in Cairn Energy. It was the year in which it not only undertook a corporate reorganisation, but also floated an Indian subsidiary, Cairn India, which in early 2007 got listed on the Indian bourses. Through the corporate reorganisation process, Cairn Energy had transferred all of its India assets, which were until then held by nine subsidiaries in various countries, to the newly-formed Cairn India.

But the tax authorities claimed that in the process of this reorganisation, Cairn Energy had made capital gains worth ₹24,500 crore. This, the department asserted, was the basis of the tax demand.

In 2011, the U.K.-based Vedanta Resources bought a nearly 60% stake in Cairn India. In fact, four years after this, Cairn India received a tax notice for not withholding tax for the gains ascribed to its former parent company.

Also read | Govt may give oilfield to Cairn in lieu of $1.4 billion dues

Is this case similar to Vodafone’s battle with the government of India?

The Vodafone case in 2007 was triggered by Hong Kong’s Hutchinson Telecommunications’ sale of its stake in India’s Hutchinson Essar to Vodafone International Holdings, based out of the Netherlands. The Hong Kong firm made a capital gain on this, which the Indian tax authorities deemed fit to tax. They held that Vodafone should have withheld the tax, and therefore imposed a liability on it. The Supreme Court quashed the taxman’s demand, concluding that it did not agree that the sale of shares in this case “would amount to transfer of a capital asset within the meaning of Section 2(14) of the Indian Income Tax Act”.

In the Union Budget of 2012, the Income Tax Act, 1961 was amended to make sure that even if a transfer of shares takes place outside India, such a transfer can be taxed if the value of those shares is based on assets in India. And this was applied retrospectively. The action against Cairn Energy was based on this move. India lost its arbitration case against Vodafone as well, with the government being asked to fork out around ₹80 crore.

Also read | Vodafone wins international arbitration against India in ₹14,200-crore tax dispute case

What happened after the tax claims in the Cairn Energy dispute?

After receiving a draft assessment order from the tax authorities, Cairn UK Holdings Ltd. appealed before the Income Tax Appellate Tribunal. The tribunal, while providing the company relief from back-dated interest demands, however, upheld the main tax demand.

The company had initiated proceedings of arbitration under the U.K.-India bilateral investment treaty. But during this time, according to a PTI report, “the government sold Cairn’s almost 5% holding in Vedanta Ltd” (the residual stake the firm owned after selling Cairn India), “seized dividends totalling ₹1,140 crore due to it from those shareholdings”, and “set off a ₹1,590-crore tax refund against the demand”.

What was the main argument of Cairn Energy during the arbitration?

The claimants, Cairn Energy and Cairn UK Holdings, argued that till the amendment was made to tax retrospectively in 2012, there was no tax on indirect transfers (transfer by a non-resident of shares in non-Indian companies which indirectly held assets in India). They also said the government had approved the 2006 reorganisation. The application of the 2012 amendments, they alleged, constituted “manifest breaches” of the U.K.-India bilateral investment treaty.

What was India’s defence during the arbitration?

India’s counter to the main charge of Cairn Energy was that its 2006 transactions were taxable irrespective of the 2012 amendments.

It argued that “Indian law has long permitted taxation where a transaction has a strong economic nexus with India”. It said even if it is retrospective, it is “valid and binding applying the longstanding constitutional, legislative and legal framework in which the claimants have invested”.

What did the arbitration tribunal rule?

The tribunal said the tax demand violated the U.K.-India bilateral investment treaty. The tribunal said India “failed to accord Cairn Energy’s investments fair and equitable treatment” under the bilateral protection pact it had with the United Kingdom.

It also ordered India to compensate Cairn Energy and its subsidiary for “the total harm suffered” as a result of the breaches of the treaty.

What next?

It has been reported in the media that India will appeal against the tribunal’s decision.

This story is available exclusively to The Hindu subscribers only.

Subscription Benefits Include

Today’s Paper

Find mobile-friendly version of articles from the day’s newspaper in one easy-to-read list.

Unlimited Access

Enjoy reading as many articles as you wish without any limitations.

Personalised recommendations

A select list of articles that match your interests and tastes.

Faster pages

Move smoothly between articles as our pages load instantly.

Dashboard

A one-stop-shop for seeing the latest updates, and managing your preferences.

Briefing

We brief you on the latest and most important developments, three times a day.

Not convinced? Know why you should pay for news.

*Our Digital Subscription plans do not currently include the e-paper, crossword and print.

[ad_2]

READ FULL ARTICLE HERE

Leave a comment , , , , ,

Cairn arbitration case: US, UK, 3 other courts confirm $1.4 billion arbitration award against India | India Business News – Times of India

[ad_1]

Read More/Less


NEW DELHI: Courts in five countries including the US and the UK have given recognition to an arbitration award that asked India to return $1.4 billion to Cairn Energy plc – a step that now opens the possibility of the British firm seizing Indian assets in those countries if New Delhi does not pay, sources said.
Cairn Energy had moved courts in nine countries to enforce its $1.4 billion arbitral award against India, which the company won after a dispute with the country’s revenue authority over a retroactively applied capital gains tax.
Of these, the December 21 award from a three-member tribunal at the Permanent Court of Arbitration in the Netherlands has been recognised and confirmed by courts in the US, the UK, Netherlands, Canada and France, three people with knowledge of the matter said.
Cairn has started the process to register the award in Singapore, Japan, the United Arab Emirates and Cayman Islands, they said.

The registration of the award is the first step towards its enforcement in the event of the government not paying the firm.
Once the court recognises an arbitration award, the company can then petition it for seizing any government assets such as bank accounts, payments to state-owned entities, airplanes and ships in those jurisdictions, to recover the monies due to it, they said.
So far the government has not directly commented on honouring or challenging the Cairn arbitration award, but finance minister Nirmala Sitharaman had last week indicated of going in for an appeal.
Cairn’s shareholders, who include top financial institutions of the world, want the company to go for enforcement action should New Delhi fail to pay it.

While the company spokesperson wasn’t reachable for comments, Cairn had on Sunday stated that it will “begin meetings this week with shareholders in the UK and US, with the international arbitration award high on the agenda.”
“The company met the government of India last month and is taking all the necessary steps to protect their shareholders’ interests,” it had said.
The tribunal had on December 21 ruled that the government breached an investment treaty with the UK and was therefore liable to return the value of shares it had seized and sold, dividend confiscated and tax refund stopped to adjust a Rs 10,247 crore tax demand.
Cairn in its filings to the courts in the nine countries is seeking “to confirm this final and binding award under the New York Convention and commence enforcement proceedings to recover the losses caused by (India’s) unfair and inequitable treatment of their investments.”

After losing in the Supreme Court a case against levying tax on capital gains made in the 2007 sale by Hutchison of its India business to Vodafone for $11.2 billion, the government had in 2012 enacted legislation that gave it powers to tax such deals retrospectively.
Thereafter, the tax department raised demands on Vodafone as well as Cairn over alleged capital gains it made on reorganising its India business prior to its listing.
But unlike Vodafone where no enforcement action was taken, it seized and sold Cairn’s residual stake in the India unit, confiscated dividends due from such holding, and stopped tax refund due to it.
The Hague panel found that a 2012 law passed by the Parliament was a new tax, not a clarification of prior law that could be applied to earlier years.
Formally, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the United Nations-backed document requires courts of contracting states to allow private agreements for arbitration and to recognize and enforce resulting awards from other contracting states.
The US and other courts have the authority to enforce arbitration agreements under the convention.
Finance minister Nirmala Sitharaman had on March 5 indicated the government’s intent to appeal against the award when she said it is her “duty” to appeal in cases where the nation’s sovereign authority to tax is questioned.
But the December 21 ruling specifically made clear that the basis of the judgment was not a challenge to the 2012 law, which gave the government powers to tax deals retrospectively, or India’s sovereign right to tax.
“The issue at stake is thus not a matter of domestic tax law; it is rather whether the fiscal measures taken by the State, valid or not under its own tax laws, violate international law,” the tribunal had said.
Sources said the award is final and the merits cannot be appealed, and under Dutch law, the grounds for setting aside an arbitral award are extremely narrow. These grounds include no valid arbitration agreement, rules for composition not being observed, tribunal exceeding its mandate, an award not signed or not reasoned and the order being contrary to public policy or public morals.
The Cairn award was unanimous with all three judges, including one appointed by the government of India consenting. The 582-page order gave detailed reasoning on the very point of the challenge brought by the Indian government, including the point that taxation did not form part of the bilateral investment treaties.

[ad_2]

READ FULL ARTICLE HERE

Leave a comment , , , , ,