Cairn Energy moves to end retro tax dispute with India

Our Bureau New Delhi | Updated on September 07, 2021

Expects refund of ₹7,900 crore


In what could be a major breakthrough since the enactment of the new law to bury retrospective taxation, Scotland-based Cairn Energy PLC has said that it is considering entering into an understanding with India to resolve the tax dispute.

In a statement on Tuesday it said, “The Group is considering entering into statutory undertakings with the Government of India in respect of new legislation, which would enable the refund of retrospective taxes collected from Cairn in India by way of asset seizures since 2014 totalling ₹79 billion (approximately $1.06 billion).”

Cairn pursues seizure of Air India's assets

In touch with FinMin

Cairn Energy’s top management has been in constant dialogue with officials on working out the nuances, ever since the draft rules for the new law were put out by the Finance Ministry. Sources in the know say the company has already submitted its views to the government.

The Finance Ministry is expected to notify the Rules and the forms for implementation anytime now. It is expected that the key condition will be the withdrawal of Cairn’s rights under the international arbitration award.


The Rules

On August 28, the Finance Ministry came out with the draft Rules proposing a mechanism for withdrawal of cases, indemnity from any future litigation, ring-fencing Indian assets abroad, and the timeline for phased settlement of the matter. The draft stipulates that the companies concerned will irrevocably withdraw, discontinue and not pursue any law suit, arbitration, conciliation or mediation either in India or abroad. They will have to withdraw any proceedings to enforce or attach India’s assets in respect of any award against the Republic and/or all Indian affiliates. The draft defines Indian affiliate as any department, agency, instrumentality, a public sector company or any other entity of the Republic of India owned directly or indirectly in India or any other country or territory outside.

Niggling point

The draft Rules propose that the companies commit to not making any future claims. This is to safeguard against a separate interested party such as direct or indirect shareholders, or any other beneficial owner filing any claim against the Republic or Indian affiliates post filing the undertaking to withdraw current proceedings. This provision did cause some concern to the companies as they felt that some finetuning is required. But this won't hold back the resolution process as they are confident of finding a solution that will provide comfort to both sides.

17 cases

Based on the retrospective taxation law, income-tax demand was raised in 17 cases. In two, assessments are pending due to stay granted by High Court. Of the 17, four are key including Cairn (which paid ₹7,880 crore as tax), New Singular Wireless (₹119 crore), WNS Capital (₹47 crore) and Vodafone (₹44.74 crore). Among these four, the Cairn case has been the most contentious. Though for now Cairn has paused all the legal cases as it is in keen to resolve the issues, a person in the know said.

Published on September 07, 2021

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