British oil explorer Cairn Energy has asked India to pay nearly $5.6 billion (approximately Rs 37,400 crore) as compensation for the negative impact caused to its business through a tax dispute. Last year, India had imposed a retrospective tax of Rs 29,047 crore on Cairn for its 2007 listing of its India operations, PTI reported.
In a 160-page statement of claim filed with an international arbitration panel in The Hague on June 28, the company sought withdrawal of the tax demand. It also declared that India has “failed to uphold its obligations” under the United Kingdom-India Investment Treaty by not giving its investments in the country “fair and equitable treatment”.
In January 2014, the Income Tax department had imposed a draft tax assessment of Rs 10,247 crore on Cairn Energy on alleged capital gains it made when it transferred its India assets to a new subsidiary – Cairn India – in 2006 and listed the firm. The Income Tax department had alleged that Cairn had then made a capital gain of Rs 24,503 crore while restructuring its corporate group.
The British company sold its majority stake in Cairn India to Vedanta Resources in 2011, according to NDTV, but it still holds 9.8% stake that was later attached by the I-T department. A final assessment order was slapped on them in 2016, which included Rs 18,800 crore of interest, in addition to a Rs 10,247-crore principal tax amount. However, Cairn Energy has claimed that the I-T department's investigation had stalled the sale of its outstanding holding in the Indian venture and cost the company around $700 million (Rs 70 crore).
The total compensation the company sought is equal to the tax demand raised and the value of Cairn Energy’s 9.8% shareholding in Cairn India. The Indian government will file its statement of defence by November, and the hearing is expected to begin early next year, reported LiveMint.