Cairn Energy gets over Rs 29,000-cr tax demand

This includes Rs 18,800 cr in interest; firm says it got the notice before Budget

A few days before Finance Minister Arun Jaitley presented his Budget this year, Edinburgh-

based Cairn Energy Plc got a Rs 29,000 crore-plus tax demand that includes Rs 18,800 crore in

interest.

Cairn Energy disclosed the figures in its preliminary results declaration on Tuesday. While this

has led to a situation where the interest amount is 84 per cent higher than the principal, almost

doubling the tax liability, it explains why Jaitley in his Budget speech offered a one-time scheme

of Dispute Resolution, wherein a company needs to pay only the tax arrears and the interest

liability and penalty are waived.

The Budget announcement was clearly done with a view to pressure companies like Cairn

Energy into accepting the scheme, since interest liability had exceeded the principal. UK-based

Vodafone is also facing a tax demand of Rs 7,990 crore with the total amount rising to Rs

20,000 crore after interest and penalty.

Finance ministry officials said the demand was not a fresh one, but a routine reminder of

outstanding demand. They said Cairn has an opportunity to utilise the one-time settlement. The

company, however, is unlikely to take the offer. In its statement, Cairn made it clear that any

tax recovery by the government would be limited to about Rs 3,216 crore ($477.5 million)

assets of its subsidiary Cairn UK Holdings Ltd (CUHL). Stating that it strongly contests the basis

of the attempt to retrospectively tax the group for an internal restructuring, the company said,

“The total assets of CUHL have a current value of $477.5 million (comprising principally the

group’s 9.8 per cent shareholding in Cairn India) and any recovery by the Indian authorities

would be limited to such assets.”

CUHL, a direct subsidiary of Cairn Energy PLC, received the assessment order from the Indian

income tax department relating to the intra-group restructuring undertaken in 2006 before the

initial public offering of Cairn India. The order sent just days before the Budget cited a

retrospective amendment to the tax law introduced in 2012 by the United Progressive Alliance

government.

Jaitley had said the resolution scheme was subject to the company concerned agreeing to

withdraw any pending case lying in courts or tribunals or any proceeding for arbitration,

mediation etc. under Bilateral Trade and Promotion Agreements (BIPA). Cairn has already

initiated international arbitration proceedings and has claimed full compensation for the $1

billion erosion in shareholder value, Simon Thomson, chief executive, Cairn Energy PLC, said in

his post-result statement. It has alleged that the Indian government expropriated its property

“without adequate and just compensation”, denied fair and equitable treatment in respect of

its investments and restricted Cairn’s right to freely transfer funds in connection with its

investment.

The company said CUHL was pursuing its rights under Indian law to appeal the assessment,

both in respect of the basis of taxation and the quantum assessed. CUHL’s shareholding in Cairn

India was originally attached by the tax department in January 2014 and CUHL continues to be

restricted from selling such shares.

NGS INDIA