The government will file an appeal against Cairn arbitration award soon and will contest its sovereign rights to tax, sources in the finance ministry said. The ministry sources said that the government will also strongly contest other suits filed by Cairn Energy at various other international courts.
An international arbitral tribunal had in December 2020 ruled against India's decision to retrospectively tax the capital gains made when Cairn UK Holdings Ltd sold shares in Cairn India Holdings Ltd, a Jersey company, to Cairn India Ltd, an Indian company.
The arbitration court unanimously ruled that India breached its obligations to Cairn under the UK-India Bilateral Investment Treaty and awarded Cairn damages of $1.2 billion plus interest and costs. India has been asked to pay this amount.
Cairn Energy Plc Chief Executive Simon Thomson on Thursday met finance ministry officials with the hope of resolving this issue. The government has said that while it welcomes Cairn Energy's move to reach out to the government, it maintains that any dispute resolution to be sought by Cairn will have to be within already existing laws. The government sources have reiterated the fact that Cairn had conducted transactions via tax havens to evade taxes.
The Cairn issue has its roots in the tax demand by the Income Tax Department against Cairn UK Holdings Ltd. for its failure to pay capital gains tax when it sold shares in Cairn India Holdings Ltd, a Jersey company, to Cairn India Ltd, an Indian company.
The Cairn Energy case is similar to Vodafone tax case, when the government had made a tax demand against Vodafone for failing to withhold tax from the payment it made to Hutchison Telecommunications International Limited after the latter sold its 67 per cent of Hutchison Essar Limited (HEL Ltd), an Indian Company.
The government had also got an adverse award in the Vodafone case in September 2020. It has already filed an appeal against the order.