 "Retro tax settlement window to shut on Dec 31")
The two companies have so far not shown any inkling to opt for the government's dispute resolution scheme, which opened on June 1.
Tax experts say since the principle tax amount is large, a better deal might have to be negotiated for these firms to give up their right to appeal or seek remedy from courts, as the matter has already reached the international arbitration stage.
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Under the Dispute Resolution Scheme, the government has offered a one-time tax settlement, subject to firms agreeing to withdraw pending cases. In the offer, the government would waive the penalty and interest amount. The interest and penalty in both the Cairn and Vodafone cases are much larger than the original tax demand. In the case of Cairn Energy Plc, the Union finance ministry has issued a notice of Rs 18,800 crore interest as of February 2016, in addition to Rs 10,200 crore tax demand made on the company two years earlier.
UK-based Vodafone too is facing a tax demand of Rs 7,990 crore, with the total amount rising to about Rs 20,000 crore after interest and penalty.
"We have not heard from these companies yet. But the one-time settlement offer is open only till December 31. This is an opportunity for them as they have long-term interests in India," said a government official.
While Vodafone did not respond to the questionnaire sent to them till the time of going to press, Cairn did not directly answer a query on whether they would opt for the scheme. It is instead looking for compensation from the government. "International arbitration proceedings, under the UK-India Investment Treaty, have commenced to settle the tax dispute which has been ongoing between Cairn Energy PLC and the Government of India since January 2014. Cairn has filed its Statement of Claim to the international arbitration panel. The decision of the arbitration panel will be final and binding," said a Cairn spokesperson.
The arbitration panel is being chaired by Laurent Levy, who is joined on the panel by two party-appointed arbitrators, Stanimir Alexandrov and Christopher Thomas. The company said it had legal advice that the indian government's actions in seeking to apply tax retrospectively to the internal group reorganisation in 2006 and "in freezing Cairn's assets in India are a breach of the Treaty, which protects against expropriation and ensures a fair and equitable investment environment for British investors in India".
Experts say the firms might find it tough to explain to their shareholders, as they had said there was no tax liability. However, government officials said shareholders would understand as taking up the offer would bring finality to the dispute.
"Even Google has paid their tax dues in UK and there are talks of a Google Tax in Europe. They have explained it to shareholders. If some liability comes, and it is a government liability, they have to pay that. Even shareholders will understand that," said another official.
Google in January had agreed to a deal with British tax authorities to pay £130m in back taxes and bear a greater tax burden in future. It could also face tax liability in Germany, besides settling dues in France. Last year, Apple agreed to pay a €318 million as tax settlement to Italian authorities.
The Cairn spokesperson said the company was claiming full compensation for the $1-billion value of which its shareholders have been deprived. The total assets of the Cairn subsidiary against which India is seeking to pursue a tax claim are worth $477 million (as at 31 December 2015) and any recovery by Indian authorities would be limited to such assets. TAXING TIMES
VODAFONE
2007
Vodafone buys Hutchison's India assets for $11 billion. Gets a notice from tax dept
* The Bombay HC rules that I-T dept has jurisdiction. Vodafone moves Supreme Court
2012
January: SC rules in favour of Vodafone, says I-T dept can’t levy tax on the deal
2014
June : Govt appoints former chief justice RC Lahoti as arbitrator
2015
May : Lahoti recuses himself from the case
July : India names Rodrigo Oreamuno to arbitrate on its behalf
* Arbitrators unable to decide on a presiding arbitrator forcing Vodafone to move ICJ
CAIRN
2014
January : Cairn Energy receives two notices from I-T dept requesting it to file tax return for FY07
March 29 : I-T dept instructs firm to hold shares in Cairn India, valued at $1 billion
2015
March 10 : Firm receives draft assessment order from I-T dept for FY07 of $1.6 bn plus interest and penalties
August 12 : Files application in ICJ to have arbitrator appointed on behalf of govt
2016
January: International arbitration commences
February: Tax assessment received