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Cairn Energy sees near term solution to India tax dispute

Up to $700m would be returned to shareholders via special dividend and buyback, subject to approval, with the remainder retained to further enhance the producing asset base, Cairn said. (Photo: Bloomberg)Premium
Up to $700m would be returned to shareholders via special dividend and buyback, subject to approval, with the remainder retained to further enhance the producing asset base, Cairn said. (Photo: Bloomberg)

  • The company sees the proposed settlement of the tax litigation as a highlight of its 2021 outlook, which will enable it to further expand its producing asset base as well as to return to shareholders by way of dividend and buy back

NEW DELHI : Cairn Energy Plc. said on Tuesday it is considering entering into statutory undertakings with the Indian government regarding retrospective tax claims, which would fetch the British explorer tax refunds totalling 79 billion or $1.06 billion.

The company sees the proposed settlement of the tax litigation as a highlight of its 2021 outlook, which will enable it to further expand its producing asset base as well as to return to shareholders by way of dividend and buy back.

Up to $700m would be returned to shareholders via special dividend and buyback, subject to approval, with the remainder retained to further enhance the producing asset base, the company said.

Cairn Energy PLC chief executive Simon Thomson described the development as one that helps business to grow and adds value to shareholders. “Progress in resolving our Indian tax issue and active portfolio management leave Cairn well-positioned to deliver growth from a sustainable business, focused on generating further value and returns for shareholders," said an official statement quoting Thomson.

India is currently exploring settlement of 17 tax disputes, including with Vodafone Group and Cairn Energy Plc., over retrospective tax claims that were raised on pre-2012 transactions invoking a controversial change in law introduced in 2012. To facilitate the settlement by nullifying those tax demands, the government passed the Taxation Laws (Amendment) Act in the monsoon session of Parliament and has sought public comments on the finer rules to be brought out under this statute.

As per the draft rules brought out by the government last week, companies involved in the 17 disputes will have to file an undertaking to the designated tax official withdrawing or agreeing to withdraw all claims, petitions, appeals and arbitration award enforcement efforts to settle the cases. In cases where no claim or proceedings is initiated by the disputing party, an undertaking has to be given not to do so in the future and waive all rights relating to the retrospective tax dispute.

Cairn Energy said in its statement that in accepting the terms of the new legislation in India, Cairn would be required to withdraw its international arbitration award claim, interest and costs and to end all legal enforcement actions to be eligible for the refund.

“Payment of the tax refund would enable a proposed return to shareholders of up to $700m, via a special dividend of $500m and a share buyback programme of up to US$200m. The remainder of the proceeds would be allocated to further expansion of the low cost, sustainable production base," the company stated.

The company said it is considering entering into statutory undertakings with the government of India under the new legislation, which would enable the refund of retrospective taxes collected from Cairn in India by way of asset seizures since 2014. The final form of these statutory undertakings has yet to be published by the Indian government but it is anticipated that the principal condition that they prescribe will be the withdrawal of Cairn’s rights under the international arbitration award, the statement said.

As the Group has not entered into any such undertaking yet, Cairn’s receivable under the award of the international arbitration remained classified as a contingent asset at the 30 June balance sheet date, the company said.

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