Retrospective tax dispute: Cairn accepts $1 billion refund offer

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Cairn Energy PLC on September 7 said it will drop litigations to seize Indian properties in countries ranging from France to the US, after the company gets a refund offer of getting a $1 billion resulting from the scrappage of a retrospective tax law in the next couple of days, Cairn CEO Simon Thomson told a news agency in an interview from London. He also informed that Cairn’s shareholders are in agreement with accepting the offer and moving on.

The government last month enacted new legislation to drop Rs 1.1 lakh crore in outstanding claims against multinationals such as telecoms group Vodafone, pharmaceuticals company Sanofi and brewer SABMiller, now owned by AB InBev, and Cairn. This was done to repair India’s damaged reputation as an investment destination.

Background

The 2012 legislation was used to levy a cumulative of Rs 1.10 lakh crore of tax on 17 entities including UK telecom giant Vodafone but nearly 98% of the Rs 8,100 crore recovered in enforcing such a demand was only from Cairn.

About Rs 8,100 crore collected from companies under the scrapped tax provision are to be refunded if the firms agreed to drop outstanding litigation, including claims for interest and penalties. Of this, Rs 7,900 crore is due only to Cairn.

“Once we get to final resolution, part of that resolution is us dropping everything in terms of litigation. We can do that within a very short period of time, just a matter of a couple of days or something,” Thomson said.

“So we are preparing on the basis of getting this resolution quickly, all these cases being dropped, and putting all this behind.” He said all enforcement proceedings brought because of the Government of India’s refusal to honour an international arbitration award asking it to return the value of money seized to enforce the retrospective tax demand, will be dropped.

An international arbitration tribunal in December overturned a levy of Rs 10,247 crore in taxes on a 2006 reorganisation of Cairn’s India prior to its listing, and asked the Indian government to return the value of shares seized and sold, dividend confiscated and tax refund withheld. This totalled $1.2 billion-plus interest and penalty.

The government initially refused to honour the award, forcing Cairn to identify $70 billion of Indian assets from the US to Singapore to enforce the ruling, including taking flag carrier Air India Ltd to a US court in May. A French court in July paved the way for Cairn to seize real estate belonging to the Indian government in Paris.