Indian proposal aims to settle tax disputes worth billions with global firms

The Indian government on Thursday (Aug 5) proposed refunding companies involved in disputes over past tax payments, aiming to settle long-running litigation over sums totalling billions of dollars with companies including Vodafone and Cairn Energy.

The amendment to the tax law, applicable after approval from both houses of parliament and president, could help settle at least 17 disputes over tax payments amounting to 500 billion rupees (S$9.05 billion) or more, analysts said.

Taxes on the indirect transfer of Indian assets before May 2012 would be “nullified on fulfilment of specified conditions”, such as the withdrawal of litigation and an undertaking that no damages claims would be filed, a government statement said.

“This decision helps to clarify our position with the investors,” Mr Tarun Bajaj, revenue secretary at the finance ministry told ET Now TV channel, adding it would help solve pending cases with Cairn Energy and Vodafone if they withdraw litigation and meet certain conditions.

The government has proposed repaying only the principle amount and not interest, he said.

An international arbitration tribunal in The Hague last year ruled that India’s imposition of a tax liability on Vodafone, as well as interest and penalties, breached an investment treaty between India and the Netherlands.

Cairn, which has oil and gas operations in India, was awarded damages of more than US$1.2 billion, plus interest and costs, in December by the Permanent Court of Arbitration at The Hague after a lengthy tussle with the Indian government over certain retrospective tax claims.

“This is a big development and will surely put a lot of uncertainty to rest,” said Mr Amit Maheshwari, tax partner at AKM Global, a tax and consulting firm.

The government’s proposed amendment in the law comes after a French tribunal last month ordered a freeze on some 20 centrally located properties belonging to the Indian government as part of a guarantee of the amount owed to Cairn.

The government has for years defended controversial retrospective amendments in the tax law introduced in 2012 by the previous government designed to claim tax from international companies which acquired assets of Indian companies.

Source: REUTERS