Former Finance Minister Pranab Mukherjee introduced the right to collect taxes after the Supreme Court ruled that Vodafone could not be taxed on a 2007 transaction involving the purchase of a 67% stake in Hutchison Whampoa d' worth. 11 billion USD. This tax was later brought against Cairn because of a corporate reorganization carried out in 2006-2007 and its assets were frozen by the authorities.
The NDA, which was in the Opposition at the time, had termed this ‘tax terrorism’ and late Finance Minister Arun Jaitley had promised to stop the retrospective tax levy. However, there was no move to scrap the law in its seven years in office so far — the latest rethink could have been prompted by Cairn Energy securing an order to freeze Indian assets in Paris last month.
“The ghost of the retrospective amendment on indirect transfers is now proposed to be buried with the government giving up claims on taxes due under such covered indirect transfers of Indian assets and is seeking to respect the original decision of the Supreme Court,” noted Aravind Srivatsan, tax leader at Nangia Andersen.
Separate international arbitration tribunal verdicts in the Vodafone and Cairn cases have ruled against India's retrospective tax demands over the past year. While the government had earlier said it will honour the legal process, it has filed appeals against both the verdicts.
Cairn Energy, which was awarded $1.2 billion by an international tribunal has filed cases in at least ten global jurisdictions, including the U.S., U.K., Canada and Japan to seize India's assets in lieu of the award as the government didn't abide by the tribunal's decision.
After Cairn filed a lawsuit in a U.S. court against Air India this May, seeking to make the national carrier liable to pay the damages awarded to it, the Finance Ministry said it is ‘vigorously defending’ its case against the international arbitration order and asserted that India had never ‘agreed to arbitrate’ a national tax dispute. In early July, a French court allowed Cairn to freeze at least 20 Indian properties in Paris worth $23 million.