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This week in tax: Cairn wins case to seize Indian state assets

UK oil and gas company Cairn Energy has won the right to seize Indian state assets based in France as part of its long-running tax dispute with the Indian government.

The Judicial Tribunal of Paris granted Cairn’s application to freeze Indian state assets in France over its claim to a $1.4 billion arbitration award. As a result, 20 Indian state-owned properties in France worth more than 20 million can be frozen.

However, the Indian Ministry of Finance has said the government “has not received any notice, order or communication, in this regard, from any French court”. The Indian government is trying to ascertain the facts and will seek legal remedies to protect its interests, according to the statement.

Cairn has stressed it would prefer an “agreed, amicable settlement” to end the dispute. “However, in the absence of such a settlement, Cairn must take all necessary legal actions to protect the interests of its international shareholders,” said the company.

The Indian government is fighting a decision by the Permanent Court of Arbitration in The Hague to award Cairn a $1.4 billion arbitration award. The company has since identified $70 billion of Indian state assets around the world including real estate and aircraft. Cairn is also pursuing a US lawsuit over Air India assets.

Cairn Energy initiated the claim to seize Indian state assets in May, but the case goes back to a corporate restructure in 2006. For more detail on the Cairn case, please check out ITR’s coverage of the twists and turns in the dispute:

Cairn tries to outmatch India for $1.4 billion arbitration award

India set to fight Cairn arbitration decision

India rebuffs Cairn’s offer to settle tax dispute

Indian dispute over GST on intermediaries rumbles on

Taxpayers lack certainty on the future of GST policy, following divergent rulings from two judges at the Bombay High Court on the tax liability of intermediary service providers.

In the dispute over the GST liability of multinational enterprises (MNEs) acting as intermediaries, neither the Indian Revenue Service nor the companies are likely to give up easily, according to Indian tax directors. The issue has been passed to the Chief Justice at the Bombay High Court after two judges reached contradictory decisions in June.

“The issue is unlikely to die down even after the final ruling from the Bombay High Court, as the stakes are high both for the government as well as for the taxpayers,” said Vikas Garg, director and head of indirect tax at Siemens.

“Either of the two litigants is likely to take it to the Supreme Court,” added Garg.

Exported goods and services are exempt from GST, but this does not apply to services provided by an intermediary, such as an agent or a broker. These services are liable for GST at 18% regardless of whether the services are provided to a customer based in India or abroad.

Yet the policy has faced strenuous opposition from taxpayers. In July 2020, the High Court of Gujarat resolved a dispute against the GST by ruling that the tax is constitutionally valid. This win for the Indian government was short-lived, as the Court admitted a petition in March 2021 to review the judgment.

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Tax transparency key to human rights

Tax transparency measures will be key to stopping tax abuse and ensuring governments gather the revenue needed to pay for sanitation and healthcare, according to a report from the Tax Justice Network (TJN) published on July 6. This is particularly crucial since the COVID-19 pandemic has hit countries around the world and exacerbated divides between the rich and poor.

“Every year 17 million more people could benefit from clean water and 34 million from basic sanitation, if revenue losses due to global tax abuse were reversed,” said Liz Nelson, director of tax justice and human rights at the TJN.

“Over a ten-year period, these gains would be associated with the prevention of 600,000 child deaths and 73,000 maternal deaths,” she added.

‘Tax Justice & Human Rights: The 4 Rs and the realisation of rights’ demonstrates how global tax avoidance and evasion, as well as illicit financial flows (IFFs) and ill-considered tax subsidies, contribute to human rights breaches. Global annual tax abuse is estimated to cost governments between $100 billion and $500 billion annually. This revenue could be used to pay for sanitation, healthcare, and education to improve the lives of millions of people.

Tax transparency measures are key tools for governments to hold taxpayers accountable and trace instances of tax abuse, and they remain at the top of the global agenda.

Read the full article here

Next week in ITR

Readers can expect ITR to revisit DAC6 and DAC7 as tax advisors expect the data raised by the EU reporting regime to lead to an increase in joint audits. At the same time, ITR will be looking at the most important indirect tax cases of the past quarter.

Meanwhile, the G20 meeting is expected to produce a decision on the OECD’s pillar one blueprints. This may be a crucial turning point for profit allocation rules. The G20 will begin to shape the future of the international tax system and how it should be reformed.

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