BackFocus on Voda tax dispute post Cairn ruling
Experts said if India choses to appeal against the Voda arbitration award, it may have to do so in case of Cairn too
PremiumThe latest setback suffered by the Centre in the tax dispute with British energy major Cairn Energy Plc has brought the focus back on New Delhi’s longstanding dispute with Vodafone Group Plc over its controversial $11 billion offshore deal in 2007, which marked the telecom major’s entry into India.
The arbitration award favouring Cairn is the second such tax dispute case in three months, after an arbitration panel in September asked India to pay Vodafone about ₹40 crore in costs and another ₹45 crore in tax refunds if it did not wish to appeal against the award. The government had said it will explore all options and an announcement on the Vodafone case was expected on Wednesday.
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Messages and calls to tax officials did not elicit any response till press time.
Experts said if India choses to appeal against the Vodafone arbitration award, it may have to do so in the case of Cairn as well. “Interestingly, today is also the deadline for India to appeal against Vodafone’s arbitral award. Since this is the second case where India has lost an international tax arbitration proceeding, if India chooses to appeal against Vodafone arbitral award, keeping consistency, they will appeal in the Cairn’s case, too," said Rakesh Nangia, chairman, Nangia Andersen India, a consultancy. In the case of Cairn’s tax dispute, India had seized dividend, tax refund and shares to partly recover the dues, he added.
Vodafone’s purchase of Hutchison Essar Ltd, which was renamed Vodafone India Ltd, had brought to the fore India’s efforts to deal with what is regarded as aggressive tax planning or tax avoidance.
The seller, Hong Kong-listed CK Hutchison Holdings Ltd had held a majority stake in the Indian telecom business, through a complex web of subsidiaries across countries. The acquisition by Vodafone’s Netherlands arm Vodafone International Holdings BV escaped capital gains tax in India as it was an offshore share transaction though the underlying assets were in India.
After the Supreme Court said early in 2012 that the deal was not taxable in India, the Centre amended the Income Tax Act to ensure such offshore deals involving Indian assets were taxable here.
The award on Cairn Energy was along expected lines given the decision on Vodafone international arbitration, said Amit Maheshwari, partner, Ashok Maheshwary and Associates Llp.
India has cancelled its bilateral investment treaties and, under the new model, tax disputes cannot be subject to arbitration. “Retrospective action has rightly been held to be unfair to foreign investors and this decision will have a bearing on ongoing disputes. The government had been waiting for this decision to decide on its next course of action," added Maheshwari.
As of March, as many as 10 arbitration cases were pending around the bilateral investment treaties India had signed in the past, of which decisions on two have come now in the last three months.
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