Source: The Hindu
List of Contents
What is the News?
Britain’s Cairn Energy Company has secured an order from a French court authorising the freezing of 20 Indian government properties in Paris valued at over 20 million euros.
What is the issue all about?
- In 2006-07, Cairn UK had transferred shares of Cairn India Holdings to Cairn India, on which Income Tax authorities slapped a tax demand of Rs 24,500 crore on the grounds that Cairn UK had made capital gains.
- Capital Gains Tax is a tax on the profit realized on the sale of a non-inventory asset. The most common capital gains are realized from the sale of stocks, bonds, precious metals, real estate, and property
- However, due to different interpretations of capital gains, the company refused to pay the tax, which prompted cases being filed at the Income Tax Appellate Tribunal (ITAT) and the Delhi High Court.
- In 2012, the Indian government then retrospectively amended the tax code, giving itself the power to go after mergers and acquisitions(M&A) deals all the way back to 1962 if the underlying asset was in India.
- The retrospective tax demanded by the Indian government was challenged by Cairn Energy Plc in the Permanent Court of Arbitration (PCA) at The Hague.
What was the PCA ruling? The judgment went in favour of the Cairns company. The court ruled that:
- The Indian government must pay roughly Rs. 8,000 crore in damages to Cairn.
- Cairn Tax Issue was not just a tax-related issue but an investment-related dispute, and therefore the issue comes under its jurisdiction.
- India’s demand in past taxes was in breach of fair treatment under the UK-India Bilateral Investment Treaty.
Moreover, Cairn can use the arbitration award to approach courts in countries such as the UK, France or US to seize any property owned by India overseas to recover the money if the award is not honored.
What has happened now?
- Cairn Energy has secured a French court order allowing it to freeze at least 20 Indian properties in central Paris.
- However, the Government of India has denied the knowledge of the order. It said that it has filed an appeal against the tribunal decision of the Permanent Court at The Hague delivered in December 2020.
What is Retrospective Taxation?
- Retrospective taxation allows a country to pass a rule on taxing certain products, items or services and deals and charge companies from a time behind the date on which the law is passed.
- Countries use this route to correct any anomalies in their taxation policies that have, in the past, allowed companies to take advantage of such loopholes.