Cairn issue explained

What is the issue about?

The dispute started in early 2014 when Indian tax authorities started questioning Cairn Energy requesting information on the group’s reorganization in the financial year 2006-07.
This escalated, and by 2015, the authorities had sent the company a draft assessment order, assessing in the process that there was a principal tax amount of $1.6 billion that was due.
The year in reference, 2006-07, was one in which big corporate changes and developments took place in Cairn Energy.
It was the year in which it not only undertook a corporate reorganization but also floated an Indian subsidiary, Cairn India, which in early 2007 got listed on the Indian Stock Market.
Through the corporate reorganization process, Cairn Energy had transferred all of its India assets, which were until then held by nine subsidiaries in various countries, to the newly-formed Cairn India.
But the tax authorities claimed that in the process of this reorganization, Cairn Energy had made capital gains worth ?24,500 crores.
This, the department asserted, was the basis of the tax demand.

What was the ruling of the Permanent Court of Arbitration?

The claimants, Cairn Energy and Cairn UK Holdings argued that till the amendment was made to tax retrospectively in 2012, there was no tax on indirect transfers.
Indirect transfers here meant transfer by a non-resident of shares in non-Indian companies which indirectly held assets in India.
The application of the 2012 amendments, they alleged, constituted “manifest breaches” of the U.K.-India bilateral investment treaty.
In December 2020, a three-member tribunal at the Permanent Court of Arbitration in the Netherlands ruled against India in its long-running tax dispute with the U.K.-based oil and gas company Cairn Energy.

Permanent Court of Arbitration

It is an intergovernmental organization located in The Hague, Netherlands.
It is not a court in the traditional sense but provides the services of an arbitral tribunal to resolve disputes that arise out of international agreements between member states, international organizations or private parties.
The cases span a range of legal issues involving territorial and maritime boundaries, sovereignty, human rights, international investment, and international and regional trade.
The PCA is constituted through two separate multilateral conventions with a combined membership of 122 states.
The organization is not a United Nations agency, but the PCA is an official United Nations Observer.

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.

Source: TH

Join Our Telegram

NGT Delhi is equal with all other branches of NGT

Governor

India–Azerbaijan

05 Apr, 26
SHARE

A year after tensions arising from Operation Sindoor, India and Azerbaijan have taken steps to restore and normalise bilateral relations. The 6th round of Foreign Office Consultations, held in Baku, marked the first such engagement since 2022, signaling renewed diplomatic momentum. Recent Diplomatic Engagement During the consultations, bo

India–Australia Economic Cooperation and Trade Agreem

04 Apr, 26
SHARE

The India–Australia Economic Cooperation and Trade Agreement has completed four years since its signing. Both countries now aim to build on this progress through strengthened collaboration and ambitious targets, including reaching AUD 100 billion in bilateral trade by 2030. What is the India–Australia Economic Cooperation and Tra

ADR Report on Political Funding

03 Apr, 26
SHARE

A recent report by the Association for Democratic Reforms (ADR) analyses donations of ?20,000 or more declared to the Election Commission of India (ECI) by national political parties for FY 2024–25, highlighting transparency and accountability in political financing. Key Findings Massive Funding Surge Total donations to nationa

Maritime Chokepoints

03 Apr, 26
SHARE

Maritime chokepoints are narrow channels along global shipping routes where maritime traffic is concentrated. These points are geopolitically and economically critical, as they handle a large proportion of global trade, especially energy shipments. Current Relevance Over two-thirds of seaborne energy trade passes through a handful o

US-Israel-Iran War

01 Apr, 26
SHARE

Following the launch of Operation Epic Fury (U.S.) and Operation Roaring Lion (Israel), the geopolitical landscape has shifted fundamentally with the confirmed death of Iran’s Supreme Leader, Ayatollah Ali Khamenei.Iran retaliated through Operation True Promise 4, launching missile attacks against Israel and nearby Gulf states. The escala