Address Cairn energy tax dispute immediately
While fighting one war, one shouldn’t fan another. But it appears that the ongoing India-Cairn tax dispute is inching towards that direction. The UK’s Cairn Energy PLC, which won the arbitration award last December, is reportedly seizing our global assets, including government buildings. The international arbitration tribunal had held India’s retrospective levy as unfair and asked the government to return $1.7 billion to Cairn. What’s troubling is, with India refusing to pay, Cairn has registered cases across multiple jurisdictions and if it succeeds, we will join countries like Pakistan and Venezuela that have had assets seized for dishonouring international rulings.
The government appointed a judge on the three-member tribunal that unanimously overturned the levy and asked India to return the value of Cairn’s sold shares, dividend seized and tax refund withheld. But the government maintains that the tribunal ‘improperly exercised jurisdiction over a national tax dispute that the Republic of India never offered and/or agreed to arbitrate’. It even termed the tribunal’s ruling as ‘highly flawed’ and moved The Hague Court of Appeals, which is expected to hear the case in September. In 2015, Cairn sought relief under the UK-India bilateral investment treaty and the tribunal held India’s actions as violative of the ‘fair and equitable treatment’ guaranteed to foreign investors. India dismisses the view and instead is arguing that the tribunal’s ruling ratifies Cairn’s scheme of achieving double non-taxation designed to avoid global taxes. This, it insists, is ‘a significant public policy concern for governments worldwide’.
As we await a closure, chances are others who have won arbitration awards, including Vodafone UK and Devas Multimedia, may feel emboldened to seize India’s assets. To avoid this, unsolicited advice is pouring in from several quarters. One such option is to offer Barmer oil fields in Rajasthan to Cairn, incidentally discovered by the company itself. Such a move could allow the government to honour its liability without adding fiscal pressure. Any reputational losses for dishonouring international rulings is needless and India must avoid global humiliation at all costs.