The Indian government is concerned whether the assurances required from companies for the settlement of the retroactive tax dispute under Indian laws make it vulnerable in international courts and arbitration panels. The government wishes to clarify this point with the companies.

India recently introduced a bill repealing the retrospective tax amendment introduced in 2012. The government has promised to reimburse taxes already collected and to withdraw all disputes and arbitrations. In return, companies must agree to withdraw litigation in all instances and waive any damages, interest or other costs.

And this is where the constraint lies for the government. Many government advisers are now examining whether such a commitment is binding and whether companies could sue or challenge India in international forums after claiming tax refunds under local laws.

“Whether the agreement requiring companies to waive damages is binding under international law is a question that needs to be clarified. Many companies, especially those that have had some success in international arbitration, might need to take a strategic call on whether to go with India’s offer and should be sensitive to their shareholders from the point of view. governance perspective, ”said Girish Vanvari, founder of tax consultancy Transaction Square.

The government has contacted legal experts on the matter, people familiar with developments said. The government has still not defined precise rules and procedures for requesting reimbursements, nor how, in what form the commitment should be requested from companies.

The government hopes to fill the gaps and make these assurances binding and shield it from further litigation in foreign courts or arbitration groups.

Legal experts point out that the way the rules are articulated would be very crucial in resolving the dispute.

“The government should provide more clarity on hindsight tax and how taxpayers should go about it, and it should be done quickly. The biggest problem is that of hastily drafted tax laws. It’s not just the taxpayers, but even the tax administrators are facing problems because of this, ”said Nishith Desai of Nishith Desai Associates, a law firm. after some companies settled the dispute. This was one of the main issues on the basis of which Cairn Energy succeeded in winning the $ 1.2 billion arbitral award against India.

“In the past, there have been instances where the government has changed its position even after issuing rules and regulations, and we hope that will not happen. But at the end of the day, if companies decide to go for a resolution under the program, it will also be a leap of faith, ”Desai said.