India expects to refund $1bn to UK-based Cairn Energy after it moved to scrap a retrospective tax law that unleashed bitter fights with prominent foreign investors.
The lower house of parliament on Friday approved a draft law introduced the previous day, cancelling a 2012 policy that enabled New Delhi to tax some foreign investments retrospectively. The upper house is expected to approve the law as early as next week.
New Delhi would also drop $13.5bn in outstanding claims against multinationals such as telecoms group Vodafone, pharmaceuticals company Sanofi and brewer SABMiller, now owned by AB InBev, as part of efforts to repair its damaged reputation as an investment destination.
Analysts say the legal initiative would allow New Delhi to resolve a bitter international tax battle with Cairn that has grown increasingly embarrassing for India. The UK energy group has sought in recent months to seize some of the government’s estimated $70bn worth of overseas assets.
“It’s a settlement offer masquerading as a law,” said one foreign business analyst, who requested anonymity.
Prime Minister Narendra Modi’s government hopes the resolution of the dispute can bolster its reputation among foreign companies as it seeks new investment to revive India’s Covid-battered economy.
“We want to give a message to the investors that the country believes in the stability and certainty of taxation,” Tarun Bajaj, revenue secretary, told journalists on Friday. “Taxation is a sovereign right and can’t be taken away. But we should use it sparingly, judiciously.”
Bajaj said that about $1.2bn collected from companies under the soon to be scrapped tax provision would be refunded if the companies agreed to drop outstanding litigation, including claims for interest and penalties.
About $1bn of this would go to Cairn and $270m to other groups including Vodafone, he added.
The revenue secretary also said India would drop about a dozen pending tax cases on which no collections have been made but which are valued — along with interest and penalties — at $13.5bn
“All the demands that have been created will be nullified,” Bajaj said. But to settle, the affected companies would “agree only to accept the principal amount, and not interest or anything else.”
An international arbitration panel in December ordered New Delhi to pay Cairn $1.2bn, plus interest and costs, in relation to the 2014 seizure and sale of a 10 per cent stake in Cairn’s former Indian operation.
New Delhi’s refusal to honour the arbitration award prompted Cairn to embark on a quest to seize Indian government assets abroad, including planes of state-owned Air India, and diplomatic apartments in Paris.
Cairn, which estimated the value of the arbitral award at $1.7bn, said on Thursday it had “noted” the proposed legislation and was “monitoring the situation”. The company declined to comment on the proposed $1bn refund.
Meyyappan Nagappan, a tax lawyer who has worked with the Indian government, said: “I don’t know if there’s enough in the deal for companies to go ahead and settle”.
Speaking of the affected companies, he added: “I don’t get damages, I don’t get legal costs, I don’t even get interest on the tax, which every company that’s owed taxes gets.”
He continued: “If Cairn has an award in its favour and they’re confident of winning an appeal and being able to enforce, which they have threatened to do, they have a lot more to gain than what’s being offered in this deal.”
Cairn shares were up 7 per cent on Friday following a 27 per cent jump on Thursday.
https://news.google.com/__i/rss/rd/articles/CBMiP2h0dHBzOi8vd3d3LmZ0LmNvbS9jb250ZW50LzBmNzNmZTIwLTE5MjUtNDg4ZS1iYjJmLWU1NmRkMDhmMTY1M9IBP2h0dHBzOi8vYW1wLmZ0LmNvbS9jb250ZW50LzBmNzNmZTIwLTE5MjUtNDg4ZS1iYjJmLWU1NmRkMDhmMTY1Mw?oc=5
2021-08-06 16:48:00Z
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