India to refund companies involved in past tax payments

India to refund companies involved in past tax payments

NEW DELHI - The Indian government proposes refunding companies involved in disputes over past tax payments, aiming to settle long-running litigation over sums totaling billions of dollars with companies including Vodafone and Cairn Energy.

The amendment to the tax law, applicable after approval from both houses of parliament and president, could help settle at least 17 disputes over tax payments amounting à 500 billion rupees or more, analysts said.

Taxes on the indirect transfer of Indian assets before May 2012 would be revoked upon completion of specified conditions, such as the withdrawal of litigation and an undertaking that no damages claims would be filed, a government statement said.

This decision helps to clarify our position with the investors, Tarun Bajaj, head of the finance ministry, told ET Now TV channel, adding it would help solve pending cases for Cairn Energy and Vodafone if they withdraw litigation and meet certain conditions.

The government has proposed repaying only the principle amount and not interest, he said.

An international arbitration tribunal in The Hague had ruled last year that India's imposition of a tax liability on Vodafone, as well as interest and penalties, breached an investment treaty between India and the Netherlands.

Cairn, which has an oil and gas operation in India, was awarded damages of more than $1.2 billion, plus interest and costs, in December by the Permanent Court of Arbitration at The Hague after a lengthy tussle with the Indian Government over certain retrospective tax claims.

This is a big development and will surely put a lot of uncertainty to rest, said Amit Maheshwari, a tax partner at AKM Global, a tax consulting firm.

The government's proposed amendment in the law comes after a French tribunal last month ordered a freeze on some 20 centrally located properties belonging to the Indian government as part of a guarantee of the amount owed by Cairn.

The government has defended retrospective amendments to the tax law introduced by the previous government in 2012 to claim tax from controversial companies acquired assets of Indian companies.