With Parliament clearing a law to mark an end to retrospective taxation, the Government has initiated “informal discussions” with companies that had been served with notices in this category, including Cairn Energy and Vodafone Group, to settle outstanding issues, The Indian Express has learnt.
These negotiations could be wrapped up within the next month, sources said, adding that any formal statement by either the Government or the companies would be issued only after that.
The Government, however, has reiterated that its sovereign right to taxation cannot be challenged and has asserted that any settlement will hinge upon the companies dropping their demands for interest and other costs, and withdrawing all pending litigation.
“Some informal discussions have been initiated with the companies,” a senior Government official said.
Responding to an email from The Indian Express seeking comment, a spokesperson for the Vodafone Group said they were “not commenting on the retrospective tax development”. But a source close to the company said it will clarify its stand only after “the negotiation” with the Government is over.
Following the retrospective amendment moved by the UPA government in 2012, tax demands have been raised in 17 cases. The government has collected Rs 8,100 crore in four of these cases, including Rs 7,900 crore from Cairn Energy. This amount will be refunded to companies once they indicate their willingness to settle the dispute on terms specified by the Government.
Tax demands were raised against 17 companies following the retrospective amendment moved in 2012. The Centre’s new approach brings closure to long-drawn legal disputes and ensures certainty around tax laws for investors.
Last Thursday, the Government moved amendments to the Income-Tax Act and Finance Act, 2012 to effectively state that no demand shall be raised for any indirect transfer of Indian assets if the transaction had been undertaken before May 28, 2012. The changes were cleared in Lok Sabha Friday, while Rajya Sabha gave a go-ahead Monday.
Following the introduction of the Bill, Cairn said in a statement that it was monitoring the progress of the Taxation Laws (Amendment) Bill 2021. “We have noted the introduction to the Indian parliament of the Taxation Laws (Amendment) Bill 2021, which proposes certain amendments to the retrospective taxation measures that were introduced by the Finance Act 2012. We are monitoring the situation and will provide a further update in due course,” the statement said.
Cairn Energy did not respond to requests for comment from The Indian Express.
According to the new law, demand raised for indirect transfer of Indian assets made before May 2012 shall be nullified on fulfilment of specified conditions such as withdrawal or furnishing of an undertaking for withdrawal of pending litigation, and furnishing of an undertaking to the effect that no claim shall be filed.
The move to amend the legislation addresses a long-pending demand of foreign investors and comes seven years into the tenure of the NDA government — at a time when the Government has suffered reverses in its arbitration cases against Cairn Energy and Vodafone.
In May, Cairn initiated the process to seize Indian assets to enforce the $1.2-billion arbitration award it won against the Government in its longstanding tax dispute. In September last year, the Permanent Court of Arbitration at The Hague had ruled that India’s retrospective demand of Rs 22,100 crore as capital gains and withholding tax imposed on Vodafone for a 2007 deal was “in breach of the guarantee of fair and equitable treatment”.