Cairn Energy seeks USD 1.4 billion in losses from retro tax demand

NEW DELHI:  Just days ago, British telecom giant Vodafone Group Plc won an international arbitration case at The Hague against a Rs 22,100 crore retrospective tax demand by India. While the most high-profile, it is by no means the only such dispute that had wound up before an international arbitration tribunal. British oil explorer Cairn Energy Plc—also facing a similar retrospective tax demand—is now seeking $1.4 billion (around Rs 10,300 crore) from the Indian government as restitution for losses incurred. 

Cairn’s petition against the demand before an international arbitration tribunal is likely to result in a verdict before the end of the year, and the company said it “continues to have a high level of confidence in its claim against India”. “(Cairn) is seeking full restitution for losses of more than $1.4 billion resulting from: the expropriation of its investments in India in 2014; continued attempts to enforce retrospective tax measures; and the failure to treat its investments fairly and equitably,” it said in its half-yearly earnings statement.

Like Vodafone, which had faced tax demands for an acquisition it made in 2007, the Indian government claims Cairn Energy needs to pay Rs 10,247 crore tax arising from a group reorganisation implemented in 2006. The firm had received its first notice in January 2014, two years after the Finance Act 2012 made it possible to impose certain taxes retrospectively. 

However, unlike Vodafone, the income-tax department has also seized some of the British firm’s assets in the country, including its 5 per cent stake in Vedanta and dividends worth Rs 1,140 crore which The tax department had eventually set off the latter against a tax refund worth Rs 1,590 crore and sold off the attached shares. However, experts note there is not much the Indian tax department can seize from Cairn even if it wins. “The Group... has legal advice confirming that the maximum amount that could ultimately be recovered from Cairn..., in excess of the assets already seized, is limited to... principally the remaining ordinary shares in Vedanta Limited with a value of $3.3 million at 30 June 2020,” Cairn’s said.