India pleads for stay in Cairn arbitration matter

India pleads for stay in Cairn arbitration

 

 

An international arbitration panel at The Permanent Court of Arbitration at The Hague in the Netherlands, has rejected India’s income tax department’s plea to stay the proceedings invoked by British oil explorer Cairn Energy Plc against a Rs10,247 crore retrospective tax notice.

Livemint reports that the Indian Government sought the stay on the basis that it has been spending significant resources on the same matter in two arbitration proceedings at different fora, and that the other proceeding which had been initiated by Vedanta was at an advanced stage.

The Statement of Claim filed by Cairn in 2016 stated that the seizure of $1-billion worth of Cairn India shares under the retrospective amendment was in breach of the UK-India Investment Treaty obligations.

The controversy regarding the retrospective Amendment made to the Income Tax Act through Finance Act 2012 relating to the Cairn Case, are, inter alia:

Widely worded amendments to Section 9 that capital gains generated from share transaction between two non-resident entities resulting in indirect transfer of assets lying in India, would be taxable with effect from 1962 (the year of enactment of the Indian Income Tax Act). The effect of the amendment was that many transactions, which would otherwise not be considered as taxable,  capital gains were exposed to this retrospective change. This, now acts as a powerful deterrent for International Companies decisions on potential investment in India due to the unpredictability of Government actions in the future

A brief summary of the Cairn and Vedanta cases against the Indian Government in relation to the retrospective tax amendment:

In 2006, UK-based Cairn UK Holdings (Cairn Energy) sold its shares in Cairn India Holdings (a Jersey based company), which owned 9 subsidiaries in India, to a new company Cairn India (formerly subsidiary of Cairn UK Holdings). Cairn UK sold the majority stake in Cairn India to London-listed Vedanta Resources in 2011 and retained 9.8 per cent shareholding in the company.

In January 2014, the Income Tax (I-T) department carried out a survey at Cairn India and issued a 10,247-crores tax notice to Cairn UK Holdings (former parent company) under the retrospective amendment of 2012 on the grounds that capital gains tax was to be paid for the 2006 transaction involving indirect transfer of assets situated in India.

Further, in April 2014, the I-T department made a tax demand of Rs. 20, 495 crores from Cairn India.

In April 2015, Cairn India filed proceedings in the Delhi High Court against the tax demand I-T Department, and Vedanta Resources sought resolution of the dispute under the UK-India bilateral investment protection treaty through Arbitration and the seat of the arbitration panel was set in Singapore.

Subsequently, Cairn UK Holdings challenged the Final Assessment Order of the I-T Department, at the Delhi-bench of Income Tax Appellate Authority (ITAT), contesting this demand on the grounds that the retrospective amendment was bad in law and the 2006 sale of shares was an internal re-organisation of its India operations and did not get any capital gains out of the transaction.

Simultaneously in 2015, Cairn UK Holdings filed a Notice of Dispute under the UK-India Investment Treaty and the arbitration commenced in January 2016. Cairn UK has sought $1.05 billion in compensation for the loss of value its 9.8 per cent shareholding in its former subsidiary Cairn India following Income Tax Department raising the tax demand in January 2014 and that the expropriation of company’s property without proper compensation, denial of equitable treatment in respect of its investments and its right of free transfer of funds.

In 2016, the Finance Ministry had offered a direct tax dispute resolution scheme offering to waive interest and penalty if the principal tax amounts involved in disputes were paid,  Cairn India declined.

In March 2017, ITAT confirmed the tax demand including the payment of interest amount, against Cairn India (validating the amendment) and at the same time, both the former and current parent companies are fighting the dispute at different arbitration panels seeking protection of their respective positions.

Both companies allege that the retrospective tax legislation passed was a violation of protections accorded under the Bilateral Investment Treaty, and constituted a serious impingement of the protections therein. It is claimed that the ramifications of these decisions will have a great impact on not only Indian Arbitration but also in India’s trade relations with the UK as well as other countries

Read the article on http://www.livemint.com/Industry/jid8tU5o1PpqgkhJgqy4mI/Cairn-arbitration-International-panel-rejects-Indias-deman.html

Read more on the 2012 amendment at http://www.indianeconomy.net/splclassroom/149/what-is-the-controversy-related-to-retrospective-taxation-in-india/

Read the case progress on http://www.thehindubusinessline.com/companies/tax-row-vedanta-names-james-spigelman-to-represent-its-case/article8988413.ece

Find the Finance Bill 2012 here and the relevant amendment at Page 9 http://164.100.24.219/BillsTexts/LSBillTexts/asintroduced/Finance%20Bill,%20Eng..pdf

Non-Resident Indians Alert! June 30 – The Deadline for conversion of the PIO card to OCI card

The Consulate General of India, Toronto and New York has issued a reminder to Non-Resident Indians (NRI) who are  Indo-Canadian and Indian American card holders to convert their PIO (Person of Indian Origin) cards to OCI (Overseas Citizens of India) cards before June 30 2017. The announcements were made in furtherance of the Indian Government’s step for the complete merger of PIO and OCI cards. 

NRI Advocates Delhi and London

The Notification of Indian Government’s Ministry of Home affairs dated 09-January-2015

http://www.hicomind.org.nz/hcinz/assets/ApplicationForms/Gazette-Notification-dated-9-jan-2015.pdf

The merging of the two was to remove the confusion between the PIO and OCI status, which broadly confer similar benefits and to simplify Indian immigration norms by making it easier for overseas Indians to apply for Indian citizenship.

However, the merger allows additional benefits to merged OCI card holders;-

  • PIO card holders previously eligible for 15 years visa, now means that OCI card holders enjoying life long visa free entry to India..
  • Exemption from police reporting.
  • Earlier PIO cards were not allowed to the nationals of Pakistan, Bangladesh, Sri Lanka, Bhutan, Iran, Nepal and China, now after merging, it is available to the nationals of above countries except Pakistan and Bangladesh.
  • To enable for registration as Overseas Citizen of India (OCI) by a minor, whose parents or either parents are Indian Citizens.
  • To enable for registration as OCI by a child or a grand-child or a great grand-child of person who has been citizen of India or undivided India at any time.
  • To enable for registration as OCI by such spouse of a citizen of India or spouse of an OCI registered under section 7A and whose marriage has been registered and subsisted for a continuous period of not less than two years immediately preceding the presentation of the application under this section with prior security checks by Competent Authority.[1]

    THE OVERSEAS CITIZEN OF INDIA CARD

  • It is not mandatory for the PIO card holders to convert their cards to OCI. But the Ministry of
  • External Affairs website advises conversion to avoid any complications during travel to India

Such steps are welcome making it easier for those eligible for OCI status to travel, education, work and trade in India as well as other benefits.

 

See the Press Release – Extension of date of Merger of PIO and OCI Cards dated December 30, 2016

http://www.mea.gov.in/press-releases.htm?dtl/27935/Extension_of_date_of_Merger_of_PIO_and_OCI_Cards

Reference and more information read:

Canada: Consulate General of India sets June 30 deadline for conversion of PIO to OCI

http://www.indiablooms.com/ibns_new/world-details/USN/11095/canada-consulate-general-of-india-sets-june-30-deadline-for-conversion-of-pio-to-oci.html

Last Date for Converting PIO Cards to OCI Cards Nearing: Deadline June 30

http://www.indiawest.com/news/global_indian/last-date-for-converting-pio-cards-to-oci-cards-nearing/article_e63ac1c4-26c6-11e7-9193-13ca6283f412.html