Cairn nears resolution of retro tax dispute

On Tuesday, the company said it is looking to enter into statutory ventures with the Indian government under a new law, paving the way for the release of its assets seized since 2014.

The refund will enable Cairn Energy to return money to its shareholders through dividends and stock buybacks and further expand its business, the company said.

Cairn Energy is the first of 17 companies, pending retrospective tax disputes, that have publicly agreed to the settlement terms proposed by India to drop tax demands. The government’s offer came after a court order for the UK company to confiscate state-owned assets after an international arbitration tribunal ruled in its favor.

Cairn Chief Executive Simon Thomson said in a statement, “Progress in resolving our Indian tax issue and proactive portfolio management leave Cairn well positioned to deliver growth from a sustainable business, which is more valuable for shareholders. focused on generating value and returns.”

“Payment of the tax refund will enable a proposed return of up to $700 million to shareholders through a $500 million special dividend and a share buyback program of up to $200 million. The remaining proceeds will be used for further expansion of a low-cost, sustainable production base. will be allotted,” Cairn said.

India is currently seeking a similar settlement to implement a controversial change in law in 2012, on retrospective tax claims made on pre-2012 transactions with 16 other companies, including Vodafone Group Plc. The settlement is sought under the Taxation Laws (Amendment) Act, which seeks to return the amount recovered without interest to companies in exchange for dropping all tax demands and all appeals and claims, petitions and arbitration award enforcement efforts. offers. In cases where the disputing party does not initiate any claim or proceeding, an undertaking not to do so in future and to waive all rights relating to the tax dispute. Cairn Energy said in its note that it must withdraw its global arbitration award claims, interest and costs and cease all legal enforcement actions to be eligible for a refund.

The final form of these statutory undertakings is yet to be published by the government, but it is anticipated that the main condition they will set will be the withdrawal of Cairn’s rights under the arbitration award, the statement said.

Since Cairn has not undertaken any such undertaking so far, Cairn’s receivables under the global arbitration award are classified as a contingent asset as on the balance sheet date of June 30, the company said.

Cairn will drop cases of seizure of diplomatic apartments in Paris and Air India planes in the US “in a matter of days” after the refund, news agency PTI reported, citing Thomson. However, the draft settlement rules issued by the government say disputed parties must first withdraw the claims, after which a tax officer will decide on the settlement of the matter within 30 days. The final rules, for which public comments were sought, have not yet been published.

Experts say that investors prefer tax certainty and this will help in disposal of cases. “Firms prepared to resolve these matters will have to operate within the framework of the plan, and even future investors in those companies will respect it, as it brings certainty. In Cairn’s case, a settlement is very much possible if it is willing to forgo loss and interest, which appears to be the case,” said Amit Maheshwari, partner at AKM Global, a tax consulting firm.

Emails sent to the finance ministry spokesperson, Cairn Energy and Vodafone Group for comments on Tuesday, remained unanswered.