UPDATE 2-India to scrap retrospective tax law in olive branch to global firms

(Recasts lede, adds analyst comments)

By Aftab Ahmed and Manoj Kumar

NEW DELHI, Aug 5 (Reuters) - India on Thursday proposed
scrapping a controversial law that taxed companies
retrospectively and said it will refund disputed amounts, a move
that could potentially settle its multi-billion-dollar tax cases
with Cairn Energy and Vodafone.

The amendment to the tax law could resolve at least 17
disputes of tax payments amounting to 500 billion rupees ($6.7
billion) or more, and will help boost investor confidence in the
South Asian economy, analysts said.

Taxes on the indirect transfer of Indian assets before May
2012 will be nullified if companies withdraw litigation and give
an undertaking that they will no longer claim damages, a
government proposal presented to parliament said.

"This is a bold move that addresses the concerns of many
foreign investors," said Rohinton Sidhwa, Partner at Deloitte
India.

At the heart of the long-running taxation disputes was a
2012 Indian law that enabled its tax authorities to make
retroactive claims on overseas corporate deals.

Tax demands under the law had stoked high-profile legal
challenges from companies and soured the investment climate even
before Prime Minister Narendra Modi's government came to power
in 2014. But the prime minister faced criticism for not swiftly
resolving the matter.

Cairn, which has oil and gas operations in India, was
awarded damages of more than $1.2 billion https://www.reuters.com/article/cairn-energy-india-arbitration-idINKBN28X0G2
last year at a tribunal at The Hague after a lengthy tussle
with New Delhi over certain tax claims.

And The Hague tribunal last year ruled that India's
imposition of a $2 billion tax on Vodafone related to its
purchase of Indian mobile assets from Hutchison Whampoa in 2007
breached an investment treaty https://www.reuters.com/article/us-india-vodafone-group-arbitration-idUSKCN26G1CR
between India and the Netherlands.

Tarun Bajaj, revenue secretary at the finance ministry, told
Reuters that the current government had proposed scrapping the
law as it doesn't believe in retrospective taxation.

"Now it depends on companies to come forward," and settle,
he said.

Cairn in a statement said it was monitoring the Indian law
changes and will provide "a further update in due course."
Vodafone declined comment.

EYEING ECONOMIC BOOST

India's proposed changes come just weeks after a French
tribunal ordered a freeze on some 20 properties of the Indian
government as Cairn started enforcing its arbitration award. The
government at the time said it "will vigorously defend its
case".

India has also proposed to return the principal tax amount
companies may have paid under the controversial 2012 law, but it
will not refund any interest New Delhi may have owed to them if
it lost the legal cases.

In Cairn's case, for example, that amount stands at roughly
80 billion rupees ($1.08 billion).

Some analysts, however, said the delayed course correction
by the Indian government may not help all disputes as some
companies would not like to lose the interest due to them.

The move is seen as one which will attract foreign investors
to India and in turn bolster economic recovery after Asia's
third largest economy contracted 7.3% in the last fiscal year
ending in March.

"The country today stands at a juncture when quick recovery
of the economy after the COVID-19 pandemic is the need of the
hour," finance minister Nirmala Sitharaman told lawmakers.
(Reporting by Manoj Kumar and Aftab Ahmed; Editing by Aditya
Kalra, David Holmes, William Maclean)