Cairn tax dispute: Hopeful of reaching decision on $1.4 billion arbitration award with Centre, says firm

Cairn tax dispute: Hopeful of reaching decision on $1.4 billion arbitration award with Centre, says firm

The corporate held three rounds of talks with prime finance ministry officers in an try and resolve the problem with out having to resort to seizing Indian belongings abroad

New Delhi: After three days of talks with prime finance ministry officers, UK’s Cairn Vitality plc on Sunday mentioned it’s hopeful of reaching an amicable decision on $1.4 billion that an arbitration award has ordered India to return, however insisted it’ll proceed to take steps to guard shareholder curiosity.

Cairn CEO Simon Thomson held discussions with Finance Secretary Ajay Bhushan Pandey and over half a dozen different senior officers together with CBDT Chairman between 18 and 20 February, in an try and discover a decision to the problem with out having to resort to excessive step of seizing Indian belongings abroad to recuperate the cash the agency has been awarded.

“We have now had cordial and constructive discussions in Delhi over the previous couple of days with officers from the Ministry of Finance.

“However and with out prejudice to our rights underneath the worldwide arbitration award, we have now mentioned a variety of proposals with the intention of discovering a swift decision that may very well be mutually acceptable to the Authorities of India and the pursuits of Cairn’s shareholders,” the agency mentioned in a press release.

Cairn, which gave the nation its greatest on-land oil discovery, promised to return to India if the problem that arose after the revenue tax division in 2014 seized its belongings after slapping a Rs 10,247 crore tax demand, was resolved.

Sources aware about Indian authorities considering have indicated that New Delhi will problem the arbitration award as taxation is a sovereign proper however this didn’t determine throughout three days of talks.

The finance ministry officers tone was extra reconciliatory realising restricted choices they’ve.

“We stay hopeful that a suitable resolution will be discovered, with a purpose to keep away from additional prolonging and exacerbating this unfavorable difficulty for all events,” Cairn mentioned. “Nevertheless, we have now additionally been clear that we should proceed to take all mandatory steps to guard the pursuits of our shareholders.”

Cairn in a letter to the Indian authorities final month indicated it may seize abroad belongings reminiscent of financial institution accounts, funds to state-owned entities, airplanes and ships if New Delhi fails to adjust to the arbitration award and return the worth of the shares offered, dividend seized and tax refund withheld by the revenue tax division to recuperate a part of the tax demand it had raised utilizing retrospective laws.

The agency has already moved courts in numerous jurisdictions such because the US, UK, Netherlands, Canada and Singapore to register the arbitration award and has began figuring out belongings it may seize within the occasion of Indian authorities doesn’t adjust to the tribunal order.

Within the assertion, Cairn mentioned it has loved an extended and profitable historical past working in India, investing billions of {dollars}, bringing employment and benefiting native communities.

The enterprise it created in India has generated greater than $20 billion in income for the federal government, the assertion mentioned.

“The freezing of our belongings in 2014 to implement a retrospective tax measure has been extraordinarily unfavorable for all events, and we’re very eager to have the ability to put this authorized matter behind us and transfer ahead positively,” the agency mentioned.

Cairn mentioned a global arbitration seated in The Hague and constituted underneath the phrases of the UK-India Bilateral Funding Treaty has “dominated conclusively on the matter and issued a ultimate and binding award in Cairn’s favour ordering the refund of the worth of the belongings taken, being $1.2 billion, plus vital curiosity and prices.”

“That arbitration additionally dominated decisively that this matter falls throughout the jurisdiction of the UK-India Treaty, having heard arguments from the events on that topic,” it mentioned.

The tax division in January 2014 raised the problem of alleged capital beneficial properties Cairn made on reorganising its India enterprise previous to an IPO in 2006-07.

In March 2015, it slapped a Rs 10,247 crore tax demand, levying short-term capital beneficial properties tax though Cairn had over a number of years constructed the India enterprise that included creating the Ravva oil and fuel area within the KG Basin and discovering the nation’s greatest onland oilfield in Rajasthan.

Cairn at the moment acknowledged that its inside reorganisation was in compliance with the regulation and had been authorized by numerous regulatory our bodies together with SEBI. It denied evading any taxes prevalent at the moment and challenged the tax demand by means of worldwide arbitration.

The federal government alleges that the offshore transactions executed by Cairn in 2006-07 have been aimed toward evading taxes. The transaction in 2006-07 concerned entities in Jersey led to capital beneficial properties within the fingers of Cairn UK Holdings, which is taxable in India, it had acknowledged.

Cairn’s fingers have been pressured by its shareholders who after ready patiently for seven years for decision of the tax difficulty, now need motion to recuperate the award. The shareholders embody massive monetary establishments reminiscent of BlackRock, Constancy, Franklin Templeton, Schroders and Aviva.

However, for the reason that 582-page judgment was issued, the federal government has given no indication about whether or not it intends to honour the decision, though fee was due instantly.

Reasonably than sit and look ahead to the federal government’s response, Cairn has moved to cowl for all eventualities and moved courts within the US, the UK, Canada, Singapore and the Netherlands to register the arbitration award, a prelude to looking for authorized seizure of belongings.

As soon as the arbitration award is registered, it might then transfer the courts to hunt its enforcement by seizing recognized Indian belongings.

A global tribunal had in December unanimously dominated that India violated its obligations underneath the UK-India Bilateral Funding Treaty in 2014, when the revenue tax division slapped a Rs 10,247-crore tax demand utilizing laws that gave it powers to levy taxes retrospectively.

In a ruling Cairn describes as “ultimate and binding”, the tribunal ordered New Delhi to pay $1.2 billion in damages, plus curiosity and prices, to compensate Cairn for the shares lengthy offered off by the tax division in addition to confiscated dividends and withheld tax refunds. This totals $1.4 billion.

If Cairn have been to implement the arbitration award, India wouldn’t be the primary nation to face seizure of its worldwide belongings from an power firm.

In 2018, ConocoPhillips seized merchandise from an oil refinery owned by PDVSA within the Dutch Caribbean after the Venezuelan state-owned oil firm didn’t honour a global judgment awarding Conoco $2 billion in compensation for the expropriation of its belongings in 2007.

Cairn Vitality had in 2011, offered Cairn India to mining billionaire Anil Agarwal’s Vedanta Group, barring a minor stake of 9.8 per cent. It wished to promote the residual stake as nicely however was barred by the I-T division from doing so. The federal government additionally froze the fee of dividends by Cairn India to Cairn Vitality.

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