British oil company Cairn Energy Plc has sued Air India in New York to seize its assets to enforce the $1.2 billion arbitration award it won against the Indian government in a retrospective tax dispute.
Cairn Energy-Air India dispute:
- In December 2020, a three-member international arbitral tribunal had ruled in a 568-page unanimous verdict that the Indian government was “in breach of the guarantee of fair and equitable treatment” which was against the India-UK bilateral treaty and that the breach caused a loss to the British energy company.
- It awarded Cairn $1.2 billion in compensation that India was liable to pay.
- To enforce this award, Cairn moved a court in the South District of New York against Air India.
- Meanwhile, India too has challenged the arbitration award in the Netherlands.
- India has moved its appeal to a different jurisdiction as because the arbitration award was delivered in Hague.
What is retrospective tax?
- The term retrospective means to look back on something that has occurred in the past. So, the term retrospective tax means to pay tax for goods and services purchased in the past or income earned in the past.
- This may happen due to laws being amended or new rules of taxation being introduced in an economy.
- A retrospective tax is usually caveated with a validation clause. It helps validate the demand for a retrospective tax payment made by one party and the decision or order passed by the country’s concerned tax authority.
For example: The Supreme Court of India (SCI) clearly states that you cannot add a new tax liability in retrospect. That is why it is accompanied by the validation clause that serves to verify the demand and pass a judgment.
- India retrospectively amended its taxation laws through the Finance Act of 2012, permitting tax authorities to reopen and/or investigate transactions from 2006 for evasion of capital gains tax.
About International Arbitration Tribunal:
The International Arbitration Tribunal is an independent and non-governmental panel of independent and impartial experts most often composed of three members nominated by the Parties (or appointed by the international arbitration institution, or more rarely by a national court) on the basis of their legal and practical expertise and knowledge, to render a final and binding award.
International arbitration is the preferred method of resolving cross-border disputes. The neutrality it offers, together with the relative ease of enforceability of awards, can make it a more attractive forum for disputes than litigating in contracting parties’ national courts.