Cairn Energy wants India to solve tax dispute 'swiftly': What is the issue all about?

In an effort to reach out to the Indian government, Cairn Energy PLC of the UK has said that it wants the government to come out with a swift solution on the controversial tax dispute case.

This comes after reports that the India government is likely to challenge an international arbitration award that went against it over the retrospective levy of taxes. Cairn Energy chief executive officer Simon Thomson is set to visit India next week.

In a Twitter message, Thomson indicated that a quick decision on the issue will lead to a positive investment climate in India.

“We would request, along with others, that the Indian government move swiftly to adhere to the award that has been given. It is important for our shareholders, who are global financial institutions and who want to see a positive investment climate in India. I am sure that working together with the government, we can swiftly draw this to a conclusion and reassure those investors the positive investment climate that India offers,” he said.

He indicated that over decades Cairn projects have generated over $20 billion revenue for the government of India and also benefited the people of states like Gujarat, Andhra Pradesh and Rajasthan.

In December, a Permanent Court of Arbitration at The Hague had ruled that the Indian government should pay damages worth $1.2 billion to the company and a case of retrospective tax was wrongly applied on Cairn. The court had ruled that the claim by the India government was “in breach of the guarantee of fair and equitable treatment”.

Cairn Energy sold the majority of its stake in Cairn India to Vedanta group in 2011

The case is related to the retrospective taxation claims by the Indian government. In 2006-07, as part of a group reorganisation, Cairn UK transferred shares of Cairn India Holdings to Cairn India. This has led to the interpretation that the global energy major had made capital gains, ahead of the initial public offering (IPO) by Cairn India. Following this, the income tax authorities had clapped a tax demand of Rs 24,500 crore on the company.

Cairn Energy sold the majority of its stake in Cairn India to Anil Agarwal-led Vedanta group in 2011, barring 9.8 per cent stake in the company. Though the company wanted to sell this residual stake too, the tax department was against the move and also froze the payment of dividend by Cairn India to Cairn Energy. The damages that the international court ruled also include the value of the share attached by the income tax department in January 2014 and sold in 2018 to partially recover the tax dues.