Cairn Energy Plc and Cairn UK Holdings Private Limited v The Republic of India: Retroactive Tax Legislation When it Ceases to Meet the Fair and Equitable Treatment Standard

(2021) 3 British Tax Review 287

Posted: 13 Aug 2021

Date Written: August 3, 2021

Abstract

This material was first published by Thomson Reuters, trading as Sweet & Maxwell, 5 Canada Square, Canary Wharf, London, E14 5AQ, in the British Tax Review as Aditya Vora, Cairn Energy Plc and Cairn UK Holdings Private Limited v The Republic of India: retroactive tax legislation when it ceases to meet the fair and equitable treatment standard, (2021) 3 British Tax Review 287 and is reproduced by agreement with the publishers.

The Cairn Award concerned whether the retroactive tax amendments enacted by India to tax offshore indirect transfers (OIT) were in breach of the UK–India Bilateral Investment Treaty (UK–India BIT). OITs are transactions where shares of a foreign company or other instruments are sold overseas, where the value of the shares is substantially derived from assets situated in India. Such a transaction becomes an offshore sale of shares rather than an onshore sale of assets. The Supreme Court of India, in the case of Vodafone International Holdings B.V. v Union of India (Vodafone (SC)), held that OITs are not taxable in India on the basis of law that existed in 2012. This position was overruled by way of an amendment through the Finance Act, 2012 (IND) (2012 Amendment), making OIT transactions taxable in India with retroactive effect from 1962. This move of retroactively amending section 9(1)(i) of the Income-Tax Act, 1961 (IND) (ITA 1961 (IND)), was heavily criticised. For fear of a similar override by the Indian Parliament, remedy through investment arbitration under the relevant Bilateral Investment Treaty (BIT) was sought in preference to litigation in the Indian courts by various foreign investors.

Keywords: Investment Arbitration, Retroactive Tax Legislation, Fair and Equitable Treatment

Suggested Citation

Vora, Aditya, Cairn Energy Plc and Cairn UK Holdings Private Limited v The Republic of India: Retroactive Tax Legislation When it Ceases to Meet the Fair and Equitable Treatment Standard (August 3, 2021). (2021) 3 British Tax Review 287, Available at SSRN: https://ssrn.com/abstract=3903780

Aditya Vora (Contact Author)

India ( email )

Colaba
Mumbai, Maharashtra 400056
India

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