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Cairn Energy to end tax dispute with India 

  • IASbaba
  • September 8, 2021
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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 

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