India will defend right to tax Cairn: Finance ministry
UK-based Cairn Energy Plc has again approached the government to resolve the $1.2 billion tax dispute amicably, the finance ministry said on Sunday, but denied directing state-owned banks to withdraw funds from foreign currency accounts abroad anticipating Cairn’s move to seize such funds in order to enforce the arbitral award.
“Certain vested parties appear to have orchestrated such misleading reporting, which often relies upon unnamed sources and presents a lopsided picture of factual and legal developments in the case,” the finance ministry said.
Cairn has been taking legal measures to enforce an international arbitration tribunal’s award of $1.2 billion (plus interest and costs) since December last year, which includes its reported attempt to attach assets belonging to the Government of India or state-owned firms such as Air India. Reuters reported it on May 15.
An international tribunal on December 22, 2020, asked India to return $1.2 billion (plus interest and costs), the disputed retrospective tax amount to Cairn Energy. India contested the arbitral award in March this year.
“Government of India [GoI] is vigorously defending its case in this legal dispute. It is a fact that the government has filed an application on March 22, 2021, to set aside the highly flawed December 2020 international arbitral award in The Hague Court of Appeal,” the finance ministry’s statement said.
The government also challenged the arbitral award per se. According to the statement, “the arbitral tribunal improperly exercised jurisdiction over a national tax dispute that the Republic of India never offered and/or agreed to arbitrate.”
It said “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” and “the award improperly ratifies Cairn’s scheme to achieve Double Non-Taxation, which was designed to avoid paying taxes anywhere in the world, a public policy concern for governments worldwide.”
The finance ministry said, “the CEO and the representatives of Cairns have approached the Government of India 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 finance ministry, however, clarified that India reserves its right to defend its national interest.
“The government is committed to pursuing all legal avenues to defend its case in this dispute worldwide,” it said.
Experts said it is not easy for private firms to attach assets of sovereign merely on the basis of an arbitral award, which India would contest. “The latest release seeks to challenge the jurisdictional powers of the tribunal to arbitrate the tax dispute in the first place,” Sunil Jain, partner at AnantLaw said.
Shinoj Koshy, partner at law firm L&L Partners said, “It simply means that GoI is challenging the award in The Hague, and until the matter is pending the GoI will vehemently resist any enforcement action against it domestic and International assets...”