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DAILY NEWS ANALYSIS

  • 09 March, 2021

  • 15 Min Read

Cairn Energy wins arbitration award

Cairn Energy wins arbitration award

  • India has been ordered to return up to $1.4 billion to Cairn Energy PLC of the U.K. after an international arbitration overturned tax demanded retrospectively — an award the government indicated it may challenge.
  • The three¬member tribunal, which also comprised a nominee of the Indian government, unanimously ruled that India’s claim of 10,247 crore in past taxes over a 2006¬07 internal reorganisation of Cairn’s India business was not a valid demand.
  • India “failed to accord Cairn Energy’s investments fair and equitable treatment” under the bilateral investment protection pact it had with the U.K.
  • The tribunal ordered the government to desist from seeking such a tax and return the value of shares it had sold, dividends seized and tax refunds withheld to recover the tax demand.
  • The government was asked to compensate Cairn “for the total harm suffered,” together with interest and cost of arbitration.

Cairn wins nod from U.S., U.K., other courts for $1.4 bn award

  • Courts in five countries including the U.S. and the U.K. have given recognition to an arbitration award that asked India to return $1.4 billion to Cairn Energy plc — a step that now opens the possibility of the British firm seizing Indian assets in those countries if New Delhi does not pay, sources said.
  • Cairn Energy had moved courts in nine countries to enforce its $1.4 billion arbitral award against India, which the company won after a dispute with the country’s revenue authority over a retroactively applied capital gains tax.

What is Capital Gains Tax (CGT)?

  • CGT is any profit or gain that arises from the sale of a ‘capital asset’ is a capital gain. This gain or profit comes under the category of ‘income’.
  • Hence, the capital gain tax will be required to be paid for that amount in the year in which the transfer of the capital asset takes place. This is called the capital gains tax, which can be both short-term or long-term.
  • What are Capital Assets? Land, building, house property, vehicles, patents, trademarks, leasehold rights, machinery, and jewellery are a few examples of capital assets. This includes having rights in or in relation to an Indian company. It also includes the rights of management or control or any other legal right.

2 Types of Capital Gains Tax

  • Long-term Capital Gains Tax: It is a levy on the profits from the sale of assets held for more than a year. The rates are 0%, 15%, or 20%, depending on tax bracket.
  • Short-term Capital Gains Tax: It applies to assets held for a year or less and is taxed as ordinary income.

  • Capital gains can be reduced by deducting the capital losses that occur when a taxable asset is sold for less than the original purchase price. The total of capital gains minus any capital losses is known as the "net capital gains".
  • Tax on capital gains is triggered only when an asset is sold, or "realized". Stock shares that appreciate every year will not be taxed for capital gains until they are sold.

  • Of these, the December 21 award from a three-member tribunal at the Permanent Court of Arbitration in the Netherlands has been recognised and confirmed by courts in the U.S., the U.K., the Netherlands, Canada and France, three people with knowledge of the matter said. Cairn has begun the process to register the award in Singapore, Japan, the United Arab Emirates and Cayman Islands, they said.

Permanent Court of Arbitration

  • PCA is an intergovernmental organization established by treaty at the First Hague Peace Conference, Netherland in 1899.
  • It is not a court in the traditional sense, but a permanent framework for arbitral tribunals constituted to resolve specific disputes.
  • PCA seeks to facilitate arbitration and other forms of dispute resolution involving various combinations of states, state entities, international organizations and private parties.
  • It was the first permanent intergovernmental organization that provided a forum for the resolution of international disputes through arbitration and other peaceful means.
  • The Permanent Court of Arbitration is the oldest global institution for the settlement of international disputes.
  • The Court offers a wide range of services for the resolution of international disputes which the parties concerned have expressly agreed to submit for resolution under its auspices.
  • The PCA is not a court, but rather an organizer of arbitral tribunals to resolve conflicts between member states, international organizations, or private parties.
  • The PCA also administers cases under the arbitration rules of the UNCITRAL.

What are the matters generally includes in the PCA?

  • It is not a court and does not have permanent judges.
  • The PCA is a permanent bureaucracy that assists temporary tribunals to resolve disputes among states (and similar entities), intergovernmental organizations, or even private parties arising out of international agreements.
  • The cases span a range of legal issues involving territorial and maritime boundaries, sovereignty, human rights, international investment, and international and regional trade.
  • All decisions, called "awards" are binding on all the parties in the dispute and have to be carried out without delay. There are some post-award proceedings available to parties unhappy with the tribunal's decision, but they are limited, particularly in inter-state disputes.

Who are members of PCA?

  • Parties to the Convention on the Pacific Settlement of disputes of 1899 (71 member states) and 1907 (101 member states) are automatically parties to the PCA.
  • As 51 are parties to both conventions, the PCA has 121 member states: 119 members of the United Nations, as well as Kosovo and Palestine.
  • India is a party of the PCA according to the Hague Convention on 1899.

  • The registration of the award is the first step towards its enforcement in the event of the government not paying the firm.
  • Once the court recognises an arbitration award, the company can then petition it for seizing any Indian government asset such as bank accounts, payments to state-owned entities, airplanes and ships in those jurisdictions, to recover the monies due to it, they said.
  • The tribunal had on December 21 ruled that the Indian government had breached an investment treaty with the U.K.

Source: TH

  • 24 December, 2020

  • 3 Min Read

Cairn Energy wins arbitration award

Cairn Energy wins arbitration award

  • India has been ordered to return up to $1.4 billion to Cairn Energy PLC of the U.K. after an international arbitration overturned tax demanded retrospectively — an award the government indicated it may challenge.
  • The three­member tribunal, which also comprised a nominee of the Indian government, unanimously ruled that India’s claim of 10,247 crore in past taxes over a 2006­07 internal reorganisation of Cairn’s India business was not a valid demand.
  • India “failed to accord Cairn Energy’s investments fair and equitable treatment” under the bilateral investment protection pact it had with the U.K.
  • The tribunal ordered the government to desist from seeking such a tax and return the value of shares it had sold, dividends seized and tax refunds withheld to recover the tax demand.
  • The government was asked to compensate Cairn “for the total harm suffered,” together with interest and cost of arbitration.

Source: TH


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