Cairn Energy to claim about $700 million from Centre

Cairn Energy Plc has said it will seek a huge claim — about $700 million — from the Indian government for ‘losses’ caused to it by the latter’s actions as part of a $1.6 billion tax dispute.

The government could face “substantial damages” against it for the fall in value of the Edinburgh head-quartered company’s residual holding in Cairn India Ltd. as a result of several factors that include the government’s decision to disallow the stake sale pending resolution of the dispute.

After raising the tax demand, citing a retrospective legislation, India’s Income Tax (I-T) department had in January 2014 provisionally attached Cairn Energy’s 10 per cent shareholding in Cairn India. The U.K. company had sold the controlling stake in its former Indian subsidiary to Vedanta Group for $8.7 billion.

The 10 per cent stake was valued at about $1 billion at the time and Cairn Energy wanted to sell this off to finance its different corporate investments. News agency PTI has reported that in a letter to Finance Minister Arun Jaitley, Cairn disputed the Rs 10,247 crore tax notice sent to it on alleged capital gains made on a 2006 internal reorganisation of its India business saying no tax was due even if the retrospective amendments to Income Tax Act are applied.

“Though the transactions undertaken by the Cairn Plc Group companies as part of the Group Reorganisation should not have even been considered as potentially subject to taxation in India, as they occurred outside of India, there would not have been any taxation owed in connection with such transactions even if they had taken place within India as they did not result in any real income earned by the Cairn Energy PLC Group,” company chief executive Simon Thomson wrote. “At current oil prices, the billion dollar stake in Cairn India is significantly reduced and compensation at the moment would be about $700 million,” a company spokesperson said, according to PTI. Thomson told Jaitley that the application of the retrospective amendments the Income Tax Act to Cairn constitute a violation of the UK-India Bilateral Investment Treaty (BIT). Cairn Energy had initiated international arbitration against the Indian government under the U.K.-India BIT seeking to ‘protect its legal position and shareholder interests’.

The I-T Department claims that Cairn Energy made capital gains of about Rs 24,503.50 crore in 2006 as a consequence of it transferring its assets in India to Cairn India, a new entity.