Can Modi beat China in the FDI game? India’s tax dispute with Cairn Energy might hold the answers
- India’s finance minister and the British firm’s CEO are meeting on Tuesday to discuss the US$1.4 billion New Delhi is liable to pay Cairn
- A cordial solution to the long-running wrangle over retrospective taxation will assure potential investors and help position India as an alternative to China
Simon Thomson and Sitharaman will discuss the US$1.4 billion that New Delhi is liable to pay Cairn, after it won in December an international arbitration case over a tax dispute based on retrospective tax claims that international investors found alarming.
The Indian government had in 2012 changed the tax code to give it more authority to claim taxes from companies for deals struck years ago, as long as the underlying assets were in India. In 2014, authorities demanded 102 billion rupees (US$1.4 billion) in taxes that it said Cairn owed on capital gains relating to a 2007 listing of the firm’s local unit.
After the international tribunal ruled unanimously that India had breached its obligations to Cairn under the UK-India Bilateral Investment Treaty, Reuters reported that Cairn was taking steps to identify Indian assets overseas against which it could enforce the award, while Indian news agency Press Trust of India subsequently reported that New Delhi could consider giving the firm a surrendered oilfield in lieu of payment.
Officials from the Indian finance ministry declined to comment when approached by This Week in Asia.
Thomson is flying to India to meet Sitharaman in person. As per the latest protocols in New Delhi, travellers from Britain are exempted from mandatory quarantine if they test negative for Covid-19 72 hours before departure and undergo another test on their arrival.
