New Delhi: Oil explorer Cairn Energy Plc on Wednesday said it asked Cairn India Ltd to pay pending dividends after an international arbitration panel confirmed that $51 million due from the Indian company is no longer restricted on account of a tax dispute with the Indian government.
Cairn India is now owned by London-listed Vedanta Resources Plc but its erstwhile parent Cairn Energy owns close to a 10% residual stake in the company, which the Indian tax department attached in May 2014 in relation to a tax dispute. The stake was valued at $383 million as on 30 June, 2016.
“Confirmation received via the international arbitration that dividends of US $51m due from Cairn India Limited (CIL) are no longer restricted, Cairn has requested the immediate release of the sum from CIL,” Cairn Energy said in a statement. It said further that international arbitration proceedings are progressing in respect to the company’s claim under the UK-India bilateral treaty.
The arbitration was triggered by a demand raised by the tax department for capital gains tax on a 2006 internal reorganization of Cairn India Ltd prior to its listing in 2007 and subsequent sale to Vedanta in 2011.
Edinburgh-based Cairn Energy had said last year that the demand included Rs10,200 crore as principal tax dues and interest dating back to 2007 totalling Rs18,800 crore. The tax demand was raised based on a 2012 change to the income tax law that allowed the department to claim taxes on past offshore transactions involving Indian assets.
An email sent to Cairn India, which is in the process of getting merged with Vedanta Ltd, a subsidiary of Vedanta Resources Plc, remained unanswered. Cairn India did not change its name after its acquisition by Vedanta. In response to an earlier emailed query in February relating to Cairn India’s future plans, the company had said that the Cairn brand will be preserved even after the merger with Vedanta.
Finance minister Arun Jaitley had in his 2016 budget offered a direct tax dispute resolution scheme, offering to waive off interest and penalty if the principal tax amounts involved in the disputes relating to the 2012 retrospective changes in tax law are paid. Cairn Energy did not avail of the scheme.