InvestorQ : What do you think must be India’s stand on the Cairn Energy case and can India win this case in an international court?
diksha shah made post

What do you think must be India’s stand on the Cairn Energy case and can India win this case in an international court?

Answer
image
swati Bakhda answered.
2 weeks ago
Follow

There are different opinions on what India needs to do. One approach is that they adopt a more conciliatory tone and the other approach is to go all out and fight the battle legally. The bigger issue is that India must realize that it has a point and its stand is justified and hence global pressure must not be allowed to influence the decision.

The tribunal passed an order against the Indian government on the premise that the retrospective tax demand was contrary to the Indo-UK tax treaty. That may be a tad simplistic since the treaty is intended to encourage genuine FDI and not to avoid paying capital gains tax through the creation of smart structures.

That is what happened in the case of Vodafone and Cairn Energy and India has rightly objected to it. Indian government has a point that even with the treaty, the Cairn deal may be FDI in form but not in substance. Hence, they are justified in invoking the clauses of the retrospective tax and put a levy. Remember, subsequent transactions have attracted tax on capital gains including the Flipkart sale to Wal-Mart.

One argument is that such an approach by the Indian government could be harmful to FDI flows. That is again a rich argument because Cairn and Vodafone are both clear attempts to avoid paying tax by hiding behind legal treaties. In the Flipkart / Wal-Mart deal, all the early stage investors who made profits on the sale of Flipkart have paid capital gains tax.

That is the standard norm in most countries and India must enforce both the UK based companies to pay up. If India pursues this case to the logical legal conclusion, it can set a good precedent and send a message to the global investors that India is not meant for tax recycling. That way, we can actually see good quality FDI coming in.

0 Views