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Cairn Energy wants govt to pay $5.6 bn for raising tax demand
NEW DELHI: Cairn Energy has sought $5.6 billion (around ₹37,600 crore) in compensation from the government for raising a ₹29,047-crore tax demand on a 10-year-old
NEW DELHI: Cairn Energy has sought $5.6 billion (around ₹37,600 crore) in compensation from the government for raising a ₹29,047-crore tax demand on a 10-year-old internal reorganisation of its India unit.
The company said the tax department’s investigation, which started in January 2014, had stalled the sale of its outstanding holding (9.8%) in Cairn India, which resulted in a $1-billion loss in value of the attached shares ($5.6 billion, including interests and penalties).
In a 160-page Statement of Claim filed with an international arbitration panel on June 28, Cairn Energy sought withdrawal of the tax demand, saying India has “failed to uphold its obligations” under the UK-India Investment Treaty by not giving its investments in the country “fair and equitable treatment.”
“International arbitration proceedings, under the UK-India Investment Treaty, have commenced to settle the retrospective tax, which has been ongoing with the Government of India (GoI) since January 2014. Cairn has filed its Statement of Claim to the International arbitration panel,” Cairn Energy said in a media statement.
The company would have restructured its business differently and listed the firm on UK exchange if it had known that India would introduce retrospective taxation, it added.
Government sources told HT they were not aware of any such Statement of Claim.
Finance minister Arun Jaitley had earlier said the government will file its defence once it receives a communication from the arbitration panel. The Centre has also maintained that the UK-India Investment Treaty does not include tax arbitrations.
Meanwhile, the tax tussle has also put a spanner on the merger of Cairn India with Vedanta Resources. The I-T department has said the merger can happen only after tax issues are resolved, or if Cairn Energy sets aside the value of its share holding in Cairn India in an escrow account. Vedanta Resources chairman Anil Agarwal recently told H The was hopeful of an early resolution to the problem, and the merger will happen within two months .
The government has been hit by a series of lawsuits over issues, including retrospective taxation, in recent years. UK-based Vodafone has a case pending with the International Court of Justice for arbitration over a bill for $2.5 billion that tax authorities say the company owes for a 2007 asset purchase.
In Budget 2016, Jaitley offered a one-time window for such retrospective tax dues to be paid, and said the government would waive off penalties and interest dues on the tax liabilities in return.
