Days before Finance Minister Arun Jaitley is to present his fourth Union Budget, British oil firm Cairn Energy Plc today asked him to use the opportunity to repeal the retrospective tax legislation that continues to create a barrier for international investors.
Cairn Energy as well as Vodafone Group of UK are among a handful of companies that had been slapped multi-billion tax demand using a 2012 legislation that gave government powers to levy tax retrospectively. But unlike others, Cairn is the only firm whose assets have been frozen during adjudication of the demand in legal forums.
“Cairn Energy would like the Government of India to take the opportunity to repeal the legislation on retrospective taxation in the forthcoming budget.
“This positive move would allow India to rid itself once and for all of this detrimental legislation which continues to create a barrier and question mark for international investors considering India as a place to do business,” its chief executive officer Simon Thomson said.
In January 2014, Cairn was slapped with a Rs 10,247 crore assessment notice on alleged capital gains it made on a 2006 internal reorganisation of India business. Last year it was slapped with a demand of Rs 29,047 crore including interest and penalty.
Also, the tax department in 2014 froze its 9.8 per cent shares in Cairn India. Cairn Energy had retained minority stake in Cairn India after selling out the business to Vedanta Group in 2011.
Cairn challenged the tax demand in arbitration but the proceedings are moving at snails pace.
“Cairn’s outstanding retrospective tax case is yet to be resolved. The issue has been ongoing for three years and is having a major impact on the business and to Cairn’s UK and international shareholders,” he said.
The company has lost $1 billion in value of its shares, forced it to sell assets, postpone investment and cut workforce by 40%.
“The retrospective tax issue is a very unfortunate conclusion of a 20 year investment in India where Cairn has been a model corporate citizen and created a legacy asset which is seen as an example of what can be achieved through India and UK cooperation,” he added.
Cairn, which discovered the country’s biggest oil field in Rajasthan, has denied any tax was due even if the retrospective amendments to Income Tax Act are applied as the group reorganisation had not resulted in any real income accruing to it.
The income tax department says Cairn Energy allegedly made a capital gain of Rs 24,503.50 crore in 2006 while transferring all its India assets to a new company, Cairn India, and getting it listed on the stock exchanges.
Cairn Energy, which had in 2011 sold majority stake in its Indian unit to mining group Vedanta for $8.67 billion, still holds 9.8% stake in Cairn India. But it has been barred by the income tax department from selling this stake.