Scottish explorer Cairn Energy plc today said it is working with the newly elected government to resolve a tax dispute that has stalled sale of its 10 per cent stake in Cairn India Ltd. "Cairn continues to seek resolution of the tax issue in India and will take all necessary steps to protect shareholders' interests," its Chief Executive Simon Thomson said.
The company faces a potential tax demand on an alleged Rs 24,500 crore of capital gains it made when in 2006 it transferred all its India assets to a new company, Cairn India and got it listed on stock exchanges. However, no tax demand has been raised so far. Cairn Energy, which had in 2011 sold majority stake in its Indian unit to mining group Vedanta for USD 8.67 billion, still holds 9.8 per cent stake in Cairn India. He said Cairn was "focussing every effort on the continuing engagement".
"There were some provisions in that budget in respect to dealing with the retrospective tax issue," he said. "We are waiting for clarification on those provisions." In his maiden budget, Finance Minister Arun Jaitley said no new tax demand will be raised using the controversial retrospective tax law introduced in 2008. Cairn is in dialogue with the tax authorities since January when it was barred from selling its 9.8 per cent stake in Cairn India Ltd. "Cairn continues to be restricted from accessing the value of its about 10 per cent residual shareholding in CIL valued at USD 1.1 billion whilst interaction with the Indian tax authorities continues," it said in a statement. The Group has not received a tax assessment or demand from the Income Tax Department.
"Cairn has re-confirmed with its advisers that throughout its history of operating in India the Company has been fully compliant with and paid applicable taxes under the legislation in force at the time," it said. The Income-Tax Department had in a January 22 order held that the Edinburgh-based firm made capital gains of Rs 24,503.50 crore when it transferred its entire India business from subsidiaries incorporated in places like Jersey, a tax haven, to the newly incorporated Cairn India in 2006. It, according to the I-T Department, received Rs 26,681.87 crore for the asset transfer against its entire investment of Rs 2,178.36 crore in the India business.
While the I-T Department has so far not raised a tax demand on Cairn Energy, it has ordered Cairn India not to allow the transfer of UK firm's residual stake. It also ordered that the shares cannot be pledged or mortgaged. After transferring the assets, the Scottish explorer listed Cairn India on the stock exchanges through an initial public offering (IPO) in 2006 that raised Rs 8,616 crore. In 2011, Cairn Energy sold its majority stake in Cairn India to Vedanta but continues to hold 9.8 per cent shares. Cairn Energy was widely seen as a likely participant in the Indian firm's share buyback, which closed last month. The I-T Department started an investigation on January 15 to determine if capital gains tax was due from Cairn Energy?s transfer of shares of Indian assets to Cairn India in 2006.
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