Cairn Energy - Indian Tax Litigation
CAIRN Energy, UK has yesterday announced its 2015 preliminary results. The Report states,
Contingent Liability - Indian Tax Assessment: Cairn UK Holdings Limited ("CUHL"), a direct subsidiary of Cairn Energy PLC, is in receipt of an assessment order from the Indian Income Tax Department ("IITD") relating to the intra-group restructuring undertaken in 2006 prior to the IPO of CIL in India, which cites a retrospective amendment to Indian tax law introduced in 2012. Cairn strongly contests the basis of this attempt to retrospectively tax the group for an internal restructuring. The assessment order is in the amount of INR102 billion (approximately USD 1.6bn) plus interest back dated to 2007 totalling INR 188bn (approximately USD 2.8bn). The total assets of CUHL have a current value of USD 477.5m (comprising principally the group's 9.8% shareholding in CIL) and any recovery by the Indian authorities would be limited to such assets. CUHL is pursuing its rights under Indian law to appeal the assessment, both in respect of the basis of taxation and the quantum assessed. CUHL's 9.8% shareholding in CIL was originally attached by the IITD in January 2014 and CUHL continues to be restricted by the IITD from selling such shares.
Furthermore, Cairn has also commenced international arbitration proceedings against the Republic of India under the UK-India Bilateral Investment Treaty (the "Treaty"), on the basis that India's actions have breached the Treaty by (1) expropriating Cairn's property without adequate and just compensation, (2) denying fair and equitable treatment to Cairn in respect of its investments and (3) restricting Cairn's right to freely transfer funds in connection with its investment. Based on detailed legal advice, Cairn is confident that it will be successful in such arbitration. Cairn's claim will seek relief by way of indemnification in respect of the tax demand, plus full compensation for its losses (including the loss of the value in the CIL shares).