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NEW DELHI : Cairn Energy Plc. on Wednesday said it has entered into a deal with India to settle its long-running tax dispute that will see India refund $1.06 billion in return for the British oil and gas explorer dropping all legal proceedings against the country.

The settlement will allow Cairn to pay shareholders a special dividend by early 2022, the company said. 

The settlement is under the Taxation Laws (Amendment) Act, introduced this year to put an end to 17 tax disputes India has with multinational companies like Cairn and Vodafone Plc.

Cairn said that to satisfy the conditions of settlement, it will start filing necessary documentation under India’s Income Tax rules, intimating the withdrawal of various enforcement actions. 

Last December, an arbitral tribunal granted an award in favour of Cairn asking India to pay $1.23 billion plus interest and $22.38 million toward arbitration and legal costs. 

“Cairn is working collaboratively with the government of India towards expediting the refund within the process of the Tax Amendment Act Rules. The previously announced special dividend is expected to be paid by early 2022," the company said in its statement.

In September, Cairn said up to $700 million would be returned to shareholders via a special dividend and buyback, with the remainder retained to further enhance the producing asset base. 

Cairn’s announcement brings one of the most controversial tax disputes in India to an end. 

Although leaders of the National Democratic Alliance (NDA) had denounced the retrospective effect with which the anti-abuse provision was introduced in tax law during the United Progressive Alliance (UPA) regime, a settlement scheme has fructified only now. 

As per the settlement, Cairn and related parties have agreed that claims relating to arbitration award or court order no longer subsist. 

The company has also given a complete release of the Republic of India or any Indian affiliates with respect to the awards, judgements and court orders as well as an indemnity in respect of any claims brought against India by related parties or interested parties. 

If the Indian authorities reject the undertaking given by the company or declines to grant relief under the settlement rules, these undertakings will be treated as having never been given, the company said. 

Seeking to repair India’s damaged reputation as an investment destination, the government had in August enacted new legislation to drop 1.1 trillion in outstanding claims against multinationals such as Vodafone, pharmaceuticals company Sanofi and brewer SABMiller, now owned by AB InBev, and Cairn.

PTI contributed to the story.

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