Home >Companies >News >Govt preps appeal in Cairn tax case

Cairn Energy Plc’s chief executive Simon Thomson will meet senior Indian officials on Thursday to discuss a tax dispute, even as India prepares to appeal a $1.2 billion arbitral award the British company recently won.

At the meeting, India’s finance secretary Ajay Bhushan Pandey will listen to the company’s proposals even as the government prepares to file the appeal in a Dutch court, three people familiar with the developments said, requesting anonymity.

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The only concession India is willing to offer Cairn is to settle the dispute through its Vivad se Vishwas scheme, under which the government will waive interest and penalty on the principal tax demand, one of the people said.

The dispute relates to a retrospective amendment of tax rules in 2012, which gave the government the authority to tax merger and acquisition (M&A) transactions dating back to 1962 if the underlying asset was in India.

While the current administration has chosen not to open fresh retrospective tax demands, it has continued to pursue old cases, including those against Cairn Energy and Vodafone Group Plc.

The government’s view is that tax demands cannot be contested under bilateral investment protection agreements and had in 2015 terminated 73 such treaties to negotiate fresh ones that exclude taxation from their purview.

The demand raised on Cairn amounts to around 10,400 crore in taxes, plus an equal amount in penalty and interest accrued.

According to Cairn Energy, the Indian government has seized residual shares in its erstwhile unit, Cairn India Ltd (acquired by Vedanta Resources), as well as a tax refund due to the British company, together amounting to approximately 10,570 crore, or $1.4 billion, to recover tax dues.

On 23 December, an international arbitration court ordered India to return more than $1.2 billion to Cairn Energy, ruling that the tax claim was invalid and asked the government to repay the funds, along with interest. India has till the end of March to appeal the arbitration award.

An email sent to the Union finance ministry seeking comments remained unanswered at the time of publishing.

A spokesperson for Cairn Energy declined to comment.

In a video statement last week, Cairn’s chief executive, Thomson, urged India to comply with the arbitration award to reassure global investors and to uphold the country’s business climate.

“I am sure that working together with the government, we can swiftly draw this to a conclusion and reassure those investors as to the positive investment climate that India offers," Thomson said.

India has already filed an application in the high court of Singapore to set aside an arbitration award that came in the case of Vodafone International Holdings BV in another controversial tax dispute.

The tax demand on Cairn was over the group’s reorganization resulting in the creation of Cairn India prior to its initial public offering.

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