$1.4 bn Cairn arbitration award: FM Sitharaman says it’s her duty to appeal
New Delhi: Finance Minister Nirmala Sitharaman on Friday indicated the government’s intent to appeal against an arbitration panel asking India to return USD 1.4 billion to UK’s Cairn Energy Plc, saying it is her “duty” to appeal in cases where the nation’s sovereign authority to tax is questioned.
Last year, the government lost two high-profile arbitrations over the levy of taxes on British firms, using legislation that gave it the power to levy taxes with retrospective effect.
While the government has already challenged in a Singapore court an international arbitration tribunal verdict that overturned its demand for Rs 22,100 crore in back taxes from Vodafone Group Plc, it hasn’t yet done so against a December 21 award asking India to return the value of shares seized and sold, dividend confiscated and tax refund stopped to adjust a Rs 10,247 crore tax demand on Cairn.
“We have made our position clear on retrospective taxation. We have repeated it in 2014, 2015, 2016, 2017, 2019, 2020, till now. I don’t see any lack of clarity,” she said, referring to the Modi government’s stand of not raising any new tax demand using the 2012 legislation.
“Where I find arbitration award questioning India’s sovereign authority to tax… if there is a question about the sovereign right to tax, I will appeal, it’s my duty to appeal,” she said. “An arbitration award, which questions the authority of government to tax, I will appeal on that.”
She did not make any direct reference to appealing against the Cairn award.
The statement comes days after her ministry officials held three rounds of talks with Cairn executives, including CEO Simon Thomson to find a solution acceptable to both sides.
The tax department had in January 2014 raised the issue of alleged capital gains Cairn made on reorganising its India business prior to an IPO in 2006-07.
In March 2015, it slapped a Rs 10,247 crore tax demand, levying short-term capital gains tax on the value the firm gained from developing India business that included discovering the nation’s biggest onland oilfield in Rajasthan.
Cairn at that time stated that its internal reorganisation was in compliance with the law and had been approved by various regulatory bodies, including Sebi. It denied evading any taxes prevalent at that time and challenged the tax demand through international arbitration.
An international tribunal had in December unanimously ruled that India violated its obligations under the UK-India Bilateral Investment Treaty in 2014 through the levy of taxes retrospectively. It asked the government to desist from pressing the tax demand.
After three days of talks last month, Cairn had in a statement said that an international arbitration seated in The Hague and constituted under the terms of the UK-India Bilateral Investment Treaty has “ruled conclusively on the matter and issued a final and binding award in Cairn’s favour ordering the refund of the value of the assets taken, being USD 1.2 billion, plus significant interest and costs”.
The amount stands at USD 1.4 billion.
Cairn had in a letter to the Indian government earlier this year indicated it could seize overseas assets such as bank accounts, payments to state-owned entities, aeroplanes and ships if New Delhi fails to comply with the arbitration award and return the value of the shares sold, dividend seized and tax refund withheld by the income tax department to recover part of the tax demand it had raised using retrospective legislation.
The firm has already moved courts in various jurisdictions such as the US, UK, Netherlands and Canada to register the arbitration award and has started identifying assets it could seize in the event of Indian government does not comply with the tribunal order.
Cairn’s hands have been forced by its shareholders, who after waiting patiently for seven years for resolution of the tax issue, now want action to recover the award. The shareholders include big financial institutions such as BlackRock, Fidelity, Franklin Templeton, Schroders and Aviva.
Cairn Energy had in 2011, sold Cairn India to mining billionaire Anil Agarwal’s Vedanta Group, barring a minor stake of 9.8 per cent. It wanted to sell the residual stake as well, but was barred by the I-T department from doing so.
The government also froze the payment of dividends by Cairn India to Cairn Energy.