India loses tax dispute to UK oil major Cairn Energy Plc.; has to shell out Rs. 8,000 crore as damages

Three months after losing the Vodafone arbitration case, India has lost another arbitration case, this time related to a tax dispute to the UK oil major Cairn Energy Plc. The international arbitration tribunal, in a verdict that came recently, has asked India to pay Rs 8,000 crore as damages to Cairn.

The winning of the international arbitration case has ended one of the most high-profile disputes in India. After the verdict, the government will have to pay the British firm Rs 8,000 crore to reverse the dividend and tax refund it ceased and shares it sold to recover part of the tax demand.

The international arbitration tribunal has reportedly concluded that the Cairn tax issue does not amount to ‘tax dispute’ but a ‘tax-related investment’ dispute and that is why it falls under its jurisdiction. It said India's tax demand from Cairn is not valid and amounts to a breach of fair treatment under the bilateral investment protection pact.

In September last, the government had lost a high-profile international tax arbitration case against Vodafone Plc after an international arbitration court ruled that the Indian government that was seeking Rs 22,100 crore in taxes from Vodafone using retrospective legislation, was in ‘breach of the guarantee of fair and equitable treatment’ under the bilateral investment protection pact between India and the Netherlands.