Taxing drama: Retrospective on tax disputes

In what should be the final act of a long and winding tax dispute drama, British firm Cairn Energy has said it has completed all steps set by the Indian government to be eligible for the withdrawal of a controversial retroactive tax levy. The firm, now named as Makar Energy, is expected to get back ₹7,900 crore. Using pre-active legislative changes introduced in the 2012 budget by then Finance Minister Pranab Mukherjee, Cairn Energy was the second major firm to be chased by the IT department for taxes that it believed had earned in the past. did. The original target of the move, which has badly hurt India’s credibility, was Vodafone, which secured a Supreme Court ruling against the tax department’s demands for past transactions. Right to ditch similar transactions involving indirect transfer of properties located in India, the IT department, from 2014, followed up on a group restructuring carried out in 2006 to Cairn, which resulted in tax demand of ₹24,500 crore . Cairn and Vodafone had initiated arbitration proceedings against the actions of the Indian tax authorities, and won in late 2020. But in Cairn’s case, the taxpayer recovered part of his ‘dues’ by forcibly selling his shares while pending arbitration proceedings – an action that led The Hague to pay him $1.2 billion in punitive damages.

As part of the government’s settlement formula worked through an amendment to the tax law last August, Cairn was tasked with enforcing an arbitration award against India, waiving damages and indemnifying the government against all future claims or liabilities. All legal proceedings had to be abandoned to do so. Last month Vodafone also took advantage of these provisions. The government, on its part, should act expeditiously to process their paperwork and clear their dues before the end of the financial year. While this would be a necessary first step towards restoring some of the damage Brand India has done, it may not be enough immediately – by labeling it as tax terrorism while in opposition, this government has been the eighth in its office. Focused on corrective action for the year. Even in the eight months following the loss of Cairn arbitration, it veered off, from denials and imputations to legal amendments to fix the mess. The only direct trigger for the change was global courts allowing forfeiture of Indian assets as Cairn sought to enforce the arbitration award. Whether it is a result of bureaucratic dogma, official obstinacy, political paralysis or a combination of all three, India needs to shed such fickleness and display greater certainty and predictability in economic policy, be it about GST or global Business linkage, so as to strengthen it. Its reputation as an ideal investment destination.