UPSC Articles
Cairn Energy to end tax dispute with India
Part of: Prelims and GS – III – Economy
Context The U.K.-based Cairn Energy is working with the Government of India to expedite “documentation and payment of refund” of $1.06 billion of retrospective taxes.
- In its half-yearly report, Cairn said it plans to return $700 million to the shareholders through special dividends and buybacks, out of the expected tax refund from the Indian government.
Recent Amendment to I-T laws by the Indian government
- The government recently amended the income tax laws to scrap the retrospective tax provisions introduced in 2012-13, under which Cairn was taxed in 2014 for a corporate restructuring undertaken in 2006-07.
- The tax department subsequently froze the firm’s shares as part of the proceedings and sold them off to recover the claimed tax dues.
- The changes propose to refund the taxes levied retrospectively if the affected taxpayers drop all pending litigation and forego any interest and damages claims.
Tribunal verdict
- An international arbitration tribunal, scrutinising the tax dispute, last year ruled in Cairn’s favour and awarded $1.2 billion in damages to the company. While the government has filed an appeal against the verdict, Cairn has filed lawsuits in several overseas jurisdictions to enforce the tribunal’s award.
Background
- The year in reference, 2006-07, was one in which big corporate changes and developments took place in Cairn Energy.
- It was the year in which it not only undertook a corporate reorganisation, but also floated an Indian subsidiary, Cairn India, which in early 2007 got listed on the Indian bourses.
- Through the corporate reorganisation process, Cairn Energy had transferred all of its India assets, which were until then held by nine subsidiaries in various countries, to the newly-formed Cairn India.
- But the tax authorities claimed that in the process of this reorganisation, Cairn Energy had made capital gains worth ₹24,500 crore. This, the department asserted, was the basis of the tax demand of 1.6 billions USD.
- In 2011, the U.K.-based Vedanta Resources bought a nearly 60% stake in Cairn India. In fact, four years after this, Cairn India received a tax notice for not withholding tax for the gains ascribed to its former parent company.
News source: TH
