Unlike developed countries where changes in tax laws are not a yearly affair, India has a practice of changing various tax provisions (including Income-tax) on year on year basis. To add insult to injury, whenever Supreme Court of India passes an unfavourable judgement on any tax provision against the Government (present or previous), the Finance Ministry speedily changes the relevant provision of the law to negate the decision of the Apex Court. To make matters worse, changes in certain provisions are made having retrospective effect.
”Consistency in tax laws”, which is an important element of “Ease of doing Business”, augurs well for domestic and foreign enterprises as one of the key considerations in taking business decisions are based on the taxation laws in a country.
Domestic enterprises need to accept these retrospective changes in tax laws without any recourse. However, MNC enterprises having subsidiaries in India, backed by Double Tax Avoidance Agreement of their resident country with India, can approach International Court of Justice as and when favorable decisions are amended by law with retrospective effect leading to huge tax demands.
Some recent examples being Vodafone Group Inc. USD $ 2 Billion and Cairn Energy Plc USD 1.40 Billion Income-tax claim by the Indian Income-tax authority due to such changes in law.
In this blog we will briefly discuss on the Cairn Energy Plc case. Some of Cairn Energy Plc’s marquee shareholders include BlackRock, MFS, Franklin Templeton and Fidelity. The dispute stems from a tax law passed in 2012 under which India demanded $1.40 bn in retrospective payments from Cairn related to the UK group’s flotation of its Indian subsidiary on the Bombay Stock Exchange in 2007. The Dutch tribunal found that when tax officials seized Cairn’s residual 10 per cent stake in the subsidiary, which it subsequently sold to Vedanta, India had violated its obligations under the 2014 UK-India bilateral investment treaty. To make matters worse for the Indian government, Cairn has recently won an asset freeze case in a French court to effectively seize Indian state-owned properties in Paris valued at more than €20m. Similar cases are filed by Cairn in other countries as well for which outcome is awaited. The Edinburgh-based company has identified $70bn of assets worldwide ranging from buildings to Air India aircraft that it may try to seize as long as India refuses to pay.
However there is contrary view of lawyer firms on whether Cairn will succeed once the matter is appealed against citing India’s sovereign immunity. Analysts say New Delhi’s unwillingness to honour the international award follows a pattern of the government’s refusal to acknowledge errors in governance. However, based on past experiences, both parties will have to sit on a table and resolve this issue.
NPowersU Expert Opinion
Retrospective tax amendments are a BIG BLOT on any government in this global village. Unfortunately, the Indian government (previous or current) has not learnt from its past mistakes even when the Apex court has always stood by the tax payers in case of litigation due to these amendments. May GOD enlighten the government by seeking answers in writing and stop this malpractice once and for all.
Related Link
https://www.ft.com/content/ac0e2c3d-e50c-418e-a43a-5a8ca2c803ad