British oil explorer Cairn Energy has asked India to pay almost $5.6 billion (approximately Rs 37,400 crore) as compensation for the negative impact caused to its business through a tax dispute.
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The compensation demand comprises the tax demand raised by Indian Income tax department and the loss of value of 9.8 percent shares of Cairn in its Indian subsidiary along with interest and penalties.
The Indian government is expected to file its statement of defense by November before the three-member arbitration panel headed by Geneva-based arbitrator Laurent Levy.
The Edinburgh-based firm has sought that the tax demand be revoked and also announce that India has failed to uphold its duties under UK-India Investment Treaty.
Cairn Energy sold its majority stake in Cairn India to Vedanta Resources in 2011 but held on to 9.8 per cent of the company, which was later attached by the I-T Department following deal.
Experts feel that Cairn Energy’s argument that when the company conducted restructuring there was no capital gains applicable on such activities, and had they known that there could be any tax applicable, they would have acted differently is a “good” argument and the global tribunal may give an favourable award to the company. It is in this restructuring that the I-T Department says Cairn made capital gains of Rs 24,503.50 crore. “It would instead have created a different transactional structure and pursued an IPO on a United Kingdom exchange”, Cairn said in the statement of claims.
Cairn said it would seek “restitution of losses” stemming from that delay.
“The Indian government’s decision not to demand capital gains tax was no mere oversight or accident”. The Centre has also maintained that the UK-India Investment Treaty does not include tax arbitrations. A three-member Arbitration Tribunal was constituted and its seat was made a decision to be in The Hague, the Netherlands.
An LIC spokesperson said: “It has been reported in sections of the media that Chairman’s office of LIC has given approval for proposed merger of Cairn India with Vedanta It is clarified that no such approval has been given by LIC and such news is factually incorrect”.
The company suffered a loss on its 9.8 percent shares following the proceedings of the department.
Last year, Cairn was asked by India to pay $1.6 billion retroactively for the 2007 listing of its India operation.
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It listed Cairn India on the stock exchanges through an IPO thereafter. The Income Tax department barred the company from selling its stake.
