Income tax-authorities asked Cairn India, a company Vedanta bought for $8.67 billion in December 2011, to pay $3.3 billion including interest for failure to deduct tax on gains made by its former parent Cairn UK Holdings in a share-transfer pricing case. Photo: Bloomberg
Income tax-authorities asked Cairn India, a company Vedanta bought for $8.67 billion in December 2011, to pay $3.3 billion including interest for failure to deduct tax on gains made by its former parent Cairn UK Holdings in a share-transfer pricing case. Photo: Bloomberg

Vedanta’s CEO says tax claims hurting India’s efforts to lure funds

Tom Albanese says India's move to claim Rs20,500 crore in back taxes from Cairn India is unfortunate and poorly timed

Mumbai: India’s move to claim around 20,500 crore in back taxes from Cairn India Ltd will deter overseas investments in Asia’s third-largest economy, said Tom Albanese, chief executive officer of parent Vedanta Resources Plc.

“Both from my current experience as an Indian corporate CEO and prior experience as a CEO of an international corporate, I’d say this is unfortunate and particularly poorly timed," Albanese, who headed Rio Tinto Plc from May 2007 to January 2013, said in an interview Friday in Mumbai. “We refute we have any liability on that tax notice and will defend our position accordingly."

Indian income tax authorities asked Cairn India, an oil producer Vedanta bought for $8.67 billion in December 2011, to pay $3.3 billion including interest for failure to deduct tax on gains made by its former parent Cairn UK Holdings Ltd in a share-transfer pricing case. The tax authorities had earlier this month also sent a claim of $1.6 billion to London-based Cairn Energy Plc, the parent of Cairn UK.

India dropped a similar tax claim against Vodafone Group Plc in January after a court decided in favour of the UK-based telecommunications company. Retrospective provisions adversely impact predictability of the tax regime and they should be avoided, finance minister Arun Jaitley said last month.

Cairn India can ask the assessing officer for a review or approach the dispute-resolution panel, a finance ministry official told reporters in New Delhi on Friday, asking not to be identified, according to rules.

India, China

Prime Minister Narendra Modi’s government estimates India’s $1.8 trillion economy will grow 7.4% in the year through March and 8.5% in the next 12 months. In contrast, Chinese Premier Li Keqiang last week set his nation’s 2015 growth target at about 7%, which would be the slowest expansion since 1990.

The International Monetary Fund (IMF) forecasts India will next year grow faster than each of its Bric counterparts—Brazil, Russia and China—for the first time since 1999.

“India is sending out wrong signal at the wrong time," Albanese said at London-listed Vedanta’s Indian headquarters. “It is currently the best positioned under Bric to attract foreign direct investments. Any corporate CEO that’s thinking of investing in India will take notice."

Cairn Energy, based in Edinburgh, UK, owns 9.82% of Cairn India. The stake is worth about $680 million. The Indian government has prevented Cairn Energy from selling its stake until the tax issue is resolved. Cairn UK had reorganized in preparation for the Indian unit’s initial public offering in 2007, Cairn India said in a stock exchange filing Friday.

Simplify structure

Vedanta, controlled by billionaire Anil Agarwal, is looking to simplify its structure to leverage synergies between its various units, Albanese said. In 2013, Vedanta combined its publicly traded Indian units Sesa Goa Ltd, an iron ore miner, and Sterlite Industries (India) Ltd, a copper producer, into Sesa Sterlite Ltd, aiming to cut debt at the parent level.

“The Sesa-Sterlite merger was about bringing many companies under a simpler corporate umbrella," Albanese said. It “was very much part of making the business more easy to understand to existing and potential investors, either equity or debt. The simplification of the business would help the group companies to work with each other and have better synergies."

Sesa Sterlite, which owns 20.47% of Cairn India, also holds a 65% stake in Hindustan Zinc Ltd and 49% in unlisted aluminum unit Bharat Aluminium Co.

‘Strictly exploratory’

“We’re looking for ways to make the business easier to understand from the external perspective and more efficient to manage from an internal perspective," Albanese said, without specifying which companies would be merged.

Vedanta is considering merging Cairn India and Hindustan Zinc with Sesa Sterlite, the Press Trust of India reported on 12 January, citing Agarwal.

“Right now, it’s strictly exploratory," Albanese said. “I don’t want to be presumptive on the outcome of the work. My own past experience is, as companies become simpler to understand they are more efficient to run."

Vedanta is seeking cost savings of $1.2 billion in four years by combining procurement and marketing improvements of which about $600 million would be achieved in the next fiscal year, Albanese said.

The various units of the company are looking at consolidation and standardization of contracts, he said. Vedanta, which has power plants located across the country, has consolidated the procurement of coal into a single office from multiple sources and procurement centers, he said. Bloomberg

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