Cairn says it took $500 mn hit due to retro tax in India

MUMBAI: British oil firm Cairn Energy said it has incurred a loss of half a billion dollars as a direct result of action of the Indian tax department on the retrospective tax matter, which has been going on for over four years now.

The company said it is seeking full restitution for losses totalling over $1.4 billion (about Rs 102,00 crore ) resulting from India’s expropriation of its investments in the country in 2014.

The final arbitration hearings were held in August in The Hague and involved testimony by expert and fact witnesses and addressed Cairn’s claims under the UK-India Bilateral Investment Treaty, India’s defences and issues of jurisdiction.

“Cairn continues to have a high level of confidence in the merits of its claims in the arbitration,” Cairn said in a statement.

“Cairn is seeking full restitution for losses totalling more than $1.4 billion resulting from India’s expropriation of its investments in India in 2014, and India’s unfair and inequitable treatment of those investments, due to the imposition of retrospective tax measures.”

In 2014, Indian tax authorities, under retrospective tax law, raised a demand on the capital gains made by Cairn Energy on internal reorganisation carried out almost a decade ago. Later, they attached the company’s residual 9.8% shares in its erstwhile subsidiary, Cairn India.

Cairn India was later merged with its new parent Vedanta. These shares have been attached for four years, but the tax department earlier this year got them transferred to itself.

“During H1, the India incometax department instructed the sale of 2% shareholding in Vedanta held by Cairn, seizing proceeds of $231 million. After H1, a further 1% of shares were sold. The tax department has also seized $162 million dividends due from the Vedanta shareholding plus a $234 million tax refund due. Following the disposal of the shareholding in Vedanta and seizure of proceeds by the tax department, Cairn has recorded a loss on de-recognition of the shares sold of $231 million,” the company said.