Cairn Energy filed a case against India in an international arbitration court seeking compensation of $5.6 billion for raising a retrospective tax demand of ₹29,047 crore on a 10-year old internal reorganisation of its Indian unit. The firm says India has not given its investments “fair treatment” as expected under the UK-India Investment Treaty.
Scotland-based Cairn went to an international arbitration tribunal in The Hague as it was asked to pay the Indian government retrospective tax of $1.6 billion for the 2007 listing of its Indian arm. In other words, India had sought taxes for transactions made by the company to reorganise its structure to prepare for Cairn India Limited’s stock market flotation.
In 2011, Cairn initiated selling majority of its stake to domestic firm Vedanta Resources Plc. However, this process was stalled as in 2014, the Indian tax department began a probe into the transaction. Cairn has sought compensation citing “”restitution of losses” due to this delay; it says it has lost $700 million.
Secondly, Cairn says India has failed to “uphold its obligations” of giving the UK-based company “fair and equitable treatment” as required under the UK-India Investment Treaty.
The Narendra Modi government has been trying to amend India’s tax treaties with various countries—it has been successful with Mauritius, Cyprus and Singapore for instance—to firstly avoid international arbitration. Secondly, it wants to levy tax on foreign investors.
