On Amazon and taxes, India shows willingness to heed arbitration

TOKYO -- India's government and courts are showing more willingness to abide by international arbitration decisions, a trend that bodes well for companies like Amazon.com. that have contracts in the vast South Asian economy.One such sign is the Modi government's move to repeal a retrospective tax introduced in 2012 that imposes levies on certain transactions that occurred before the rule was in place.Tax authorities had used this provision to go after foreign companies, slapping them with hefty taxes on earlier deals. Those that fought payment turned to international arbitration in hopes of having the levies invalidated.Among the most prominent examples was U.K.-based oil and gas developer Cairn Energy, which took its case to an international arbitration court in The Hague, seeking to have its payments refunded with interest.The tribunal in December found that the retrospective tax violated a bilateral investment protection agreement between India and the U.K., and ordered the Indian government to pay Cairn $1.7 billion as compensation. When New Delhi refused to comply, citing its "sovereign right to taxation," Cairn sued to seize Indian state assets around the world.Its motion to freeze Indian state-owned real estate in Paris succeeded. Cairn sued in the U.S. to seize Air India planes and was preparing similar lawsuits in Singapore and Japan.Amid this embarrassment, Prime Minister Narendra Modi's government on Aug. 5 submitted legislation to scrap the retrospective tax -- a long-awaited step toward fulfilling a pledge from the 2014 election campaign that brought Modi to power. His party had railed against what it called "tax terrorism."After the bill was submitted, senior officials indicated that New Delhi would voluntarily refund Cairn what it had paid without adding interest. While Cairn has not decided whether to accept the refund and drop the lawsuits pursuing Indian state assets around the world, India's decision at least appears to be a climbdown in the face of the arbitration ruling.A day after that move, on Aug. 6, the Supreme Court of India affirmed the validity and enforceability inside India of a ruling by the Singapore International Arbitration Center in a case involving Amazon.com and Indian retailer Future Group.Future, brought to the brink of bankruptcy by the coronavirus pandemic, last August agreed to sell its retail and other operations to Reliance Industries, the conglomerate that owns India's largest retail group.Amazon objected to this deal, arguing it went against provisions in its business partnership contracts with Future that granted it the right of first refusal on any transfer of Future Retail shares and barred Future from selling group assets to Amazon's competitors, which obviously include Reliance.The U.S. e-commerce giant turned to the Singapore body to stop the sale, and the arbitrator largely sided with Amazon, imposing a preliminary injunction. Future and Reliance declared to proceed with their merger transaction, arguing the Singapore ruling had no validity and is unenforceable in India. Amazon then went to India's Supreme Court.This month's Supreme Court decision could be considered a complete victory for Amazon as well as a welcome break from the political headwinds the company has faced there. It was the first case in India to establish the validity of contract clauses that require disputes to be arbitrated in a third country, a standard provision in international agreements.Such provisions are key criteria for investment decisions by the multinationals and venture capitalists that the Modi government says it seeks to attract. For global investors, the government's recent moves suggest that pragmatism is tempering India's fiercely defended judicial and tax sovereignty.

On Amazon and taxes, India shows willingness to heed arbitration

TOKYO -- India's government and courts are showing more willingness to abide by international arbitration decisions, a trend that bodes well for companies like Amazon.com. that have contracts in the vast South Asian economy.

One such sign is the Modi government's move to repeal a retrospective tax introduced in 2012 that imposes levies on certain transactions that occurred before the rule was in place.

Tax authorities had used this provision to go after foreign companies, slapping them with hefty taxes on earlier deals. Those that fought payment turned to international arbitration in hopes of having the levies invalidated.

Among the most prominent examples was U.K.-based oil and gas developer Cairn Energy, which took its case to an international arbitration court in The Hague, seeking to have its payments refunded with interest.

The tribunal in December found that the retrospective tax violated a bilateral investment protection agreement between India and the U.K., and ordered the Indian government to pay Cairn $1.7 billion as compensation. When New Delhi refused to comply, citing its "sovereign right to taxation," Cairn sued to seize Indian state assets around the world.

Its motion to freeze Indian state-owned real estate in Paris succeeded. Cairn sued in the U.S. to seize Air India planes and was preparing similar lawsuits in Singapore and Japan.

Amid this embarrassment, Prime Minister Narendra Modi's government on Aug. 5 submitted legislation to scrap the retrospective tax -- a long-awaited step toward fulfilling a pledge from the 2014 election campaign that brought Modi to power. His party had railed against what it called "tax terrorism."

After the bill was submitted, senior officials indicated that New Delhi would voluntarily refund Cairn what it had paid without adding interest. While Cairn has not decided whether to accept the refund and drop the lawsuits pursuing Indian state assets around the world, India's decision at least appears to be a climbdown in the face of the arbitration ruling.

A day after that move, on Aug. 6, the Supreme Court of India affirmed the validity and enforceability inside India of a ruling by the Singapore International Arbitration Center in a case involving Amazon.com and Indian retailer Future Group.

Future, brought to the brink of bankruptcy by the coronavirus pandemic, last August agreed to sell its retail and other operations to Reliance Industries, the conglomerate that owns India's largest retail group.

Amazon objected to this deal, arguing it went against provisions in its business partnership contracts with Future that granted it the right of first refusal on any transfer of Future Retail shares and barred Future from selling group assets to Amazon's competitors, which obviously include Reliance.

The U.S. e-commerce giant turned to the Singapore body to stop the sale, and the arbitrator largely sided with Amazon, imposing a preliminary injunction. Future and Reliance declared to proceed with their merger transaction, arguing the Singapore ruling had no validity and is unenforceable in India. Amazon then went to India's Supreme Court.

This month's Supreme Court decision could be considered a complete victory for Amazon as well as a welcome break from the political headwinds the company has faced there. It was the first case in India to establish the validity of contract clauses that require disputes to be arbitrated in a third country, a standard provision in international agreements.

Such provisions are key criteria for investment decisions by the multinationals and venture capitalists that the Modi government says it seeks to attract. For global investors, the government's recent moves suggest that pragmatism is tempering India's fiercely defended judicial and tax sovereignty.