NEW DELHI, Aug 5 (Reuters) – India on Thursday proposed abolishing a controversial law that taxes companies retrospectively and refunds controversial amounts, a move that could end its billions of dollars in tax cases with Cairn Energy (CNE .L) and Vodafone (VOD.L).
The tax law amendment could resolve at least 17 disputes over tax payments of 500 billion rupees ($ 6.7 billion) or more and help build investor confidence in the South Asian economy, analysts said.
Taxes on indirect transfers of Indian assets prior to May 2012 will be canceled if companies pull out of litigation and commit not to pursue claims for damages, according to a government proposal before parliament.
“This is a bold move that addresses the concerns of many overseas investors,” said Rohinton Sidhwa, partner at Deloitte India.
At the center of the long-running tax disputes was an Indian law from 2012 that allowed the tax authorities to assert retrospective claims on foreign corporate transactions.
Tax demands under the law had already fueled high-profile legal challenges for companies before Prime Minister Narendra Modi took office in 2014 and put a strain on the investment climate. However, the prime minister has been criticized for not resolving the matter quickly.
Cairn, which operates oil and gas operations in India, was awarded more than $ 1.2 billion in damages last year before a tribunal in The Hague after a long dispute with New Delhi over certain tax claims.
And the Hague Tribunal ruled last year that India’s levying of a $ 2 billion tax on Vodafone in connection with the purchase of Indian cellular equipment from Hutchison Whampoa in 2007 is in violation of an investment agreement between India and the Netherlands.
Tarun Bajaj, Treasury Secretary at the Treasury Department, told Reuters that the current government has proposed repealing the law because it does not believe in retroactive taxation.
“Now it is up to the companies to get in touch,” he said.
Cairn said in a statement it is monitoring Indian law changes and will provide “another update in due course”. Vodafone declined to comment.
EYES ECONOMIC BOOST
India’s proposed changes come just weeks after a French court ordered the freeze on about 20 Indian government properties when Cairn began enforcing its award. The government said at the time that it would “vigorously defend its case”.
India has also proposed reimbursing the main amount of tax companies may have paid under the controversial 2012 law, but it will not reimburse any interest New Delhi may have owed them if it lost the litigation.
In the case of Cairn, for example, that amount is about 80 billion rupees ($ 1.08 billion).
However, some analysts said the Indian government’s delayed course correction may not help all disputes as some companies don’t want to lose the interest they deserve.
The move is seen as one that will attract foreign investors to India and, in turn, bolster the economic recovery after Asia’s third largest economy contracted 7.3% in the last fiscal year that ended in March.
“The country is at a point today where a rapid economic recovery after the COVID-19 pandemic is the order of the day,” Finance Minister Nirmala Sitharaman told lawmakers.
Reporting by Manoj Kumar and Aftab Ahmed; Adaptation by Aditya Kalra, David Holmes, William Maclean
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