Realist, not conformist analysis of the latest financial, business and political news

Cairn Energy’s Note For The Wealth Tax Brigade

Cairn Energy has just won its case against the Indian taxman:

Investors in Cairn Energy were licking their lips today at the prospect of a cash payout after the oil explorer won a long-running tax battle with the Indian government.

An international arbitration panel unanimously ruled in Cairn’s favour and the company has been awarded $1.2 billion in compensation and will recoup a further $200 million in legal costs and interest.

The why of this is long and boring. Essentially, India has been trying to tax capital gains made by companies for a long time. However, the law they had didn’t capture those capital gains into the tax net. Or, if you want to run it the other way around, companies organised matters so that the gains weren’t captured in the tax net. In other cases things were done like using the tax treaty with Mauritius.

That is, instead of selling someone an Indian company they sold the Mauritian company which owned the Indian one. This is what triggered the Hutchison / Vodafone case – duly won, in the end, by Vodafone.

As every government has the right to do they changed the law on this. OK. However:

In 2014 tax officials in India began an investigation into whether Cairn was due to pay retrospective taxation on the reorganisation of its business in the country before the 2007 initial public offering. They put in a claim for $1.4 billion of tax under laws that had been introduced in 2012.

They tried to use 2012 law to judge a 2007 transaction. Nope, that doesn’t work.

Which gives us an idea about this wealth tax under discussion. You know, the raise £260 billion with only a 1% tax one? Leave aside that it’s actually a 5% tax, 1% each year for five years. That it’s a tax on pensions as well as everything else – and thus a tax upon 60 year olds – and the idiocy of wealth taxes in the first place.

The insistence is that it must be a retrospective tax. It has to be a tax brought in now on wealth held in the past. And rules have to be in place to prevent forestalling. That is, it’s a retrospective tax, it has to be other wise people won’t be here to be taxed. But retrospective taxation is, you know, wrong.

Even, as the international arbitration has just said, naughty.

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3 years ago

They want the money. The rights and wrongs or legalities of how they grab aren’t something the politicians pay much attention too. They go for the grab and see if it works. Kind of like Viking raiders who take their chances on being fought off.

3 years ago
Reply to  TD

The way to fight off Viking raiders was with a sword through their neck or their guts – which would still work today IF ONLY you could find them and get close enough.

dodgy geezer
dodgy geezer
3 years ago

A Merry Christmas to all my readers….

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