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Centre accepts Cairn’s offer on retrospective tax:

GS Paper 3:

Topics Covered: Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.

 

Cairn’s offer on retrospective tax

Context:

Moving quickly towards ending a retrospective tax dispute with a firm that gave India its largest oilfield, the government has accepted Cairn Energy PLC undertakings which would allow for the refund of taxes.

  • The company will now be issued a ₹7,900 crore refund.

 

What’s the issue?

In December 2020, a three-member international arbitral tribunal at the Permanent Court of Arbitration in the Netherlands ruled unanimously that the Indian government was “in breach of the guarantee of fair and equitable treatment”, and against the India-UK Bilateral Investment Treaty, and that the breach caused a loss to the British energy company and ordered compensation of $1.2 billion.

  • Cairn had challenged the Indian government seeking taxes over an internal business reorganisation using the 2012 retrospective tax law, under the UK-India Bilateral Investment Treaty.
  • In 2014, the Indian tax department had demanded Rs 10,247 crore in taxes.
  • In 2015, Cairn Energy Plc commenced international arbitration proceedings against the Indian government.

 

What next?

Please note that the Indian government’s recent amendment to taxation laws nullifies the tax assessment originally levied against Cairn in January 2016 and orders the refund of ₹7,900 crore which was collected from Cairn in respect of that assessment.

 

What is retrospective taxation?

  • It 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.
  • Retrospective Taxation hurts companies that had knowingly or unknowingly interpreted the tax rules differently.

 

Permanent Court of Arbitration:

  1. It was established in 1899 and is headquartered in The Hague, Netherlands.
  2. It is an intergovernmental organization dedicated to serve the international community in the field of dispute resolution and to facilitate arbitration and other forms of dispute resolution between States.
  3. All decisions, called “awards” are binding on all the parties in the dispute and have to be carried out without delay.

 

Insta Curious:

How arbitration, mediation and conciliation are different from each other? Reference:

 

InstaLinks:

Prelims Link:

  1. What is Arbitration?
  2. Recent Amendments.
  3. About the International Court of Arbitration.
  4. About the Arbitration Council of India.
  5. Appointment of arbitrators under the 1996 Act.
  6. Permanent Court of Arbitration- composition, functions and members.

Mains Link:

Discuss the significance of the Arbitration and Conciliation (Amendment) Act.

Sources: the Hindu.