What is Cairn India?
The company is one of the largest foreign investors in India with cumulative investments of $6.5 billion and has a capacity to produce 1.7 lakh barrels of oil a day.
What is the company's stance on the issue?
Cairn Energy has sought $ 5.6 billion in compensation from the Indian government for raising a retrospective tax demand of Rs. 29,047 crore on 10-year old internal reorganisation of its India unit, Cairn India.
It sought $1.05 billion in compensation for the loss of value its 9.8 per cent shareholding in its erstwhile subsidiary Cairn India suffered following Income Tax Department raising the tax demand in January 2014 and attaching the shares. The British firm sold majority stake in Cairn India to Vedanta Resources in 2011 but still holds 9.8 per cent stake in the company, which was attached by Income Tax Department.
The company denied any tax was due even if the retrospective amendments to Income Tax Act are applied as the group reorganisation had not resulted in any real income accruing to it. Cairn Energy chief executive Simon Thomson wrote to Prime Minister Narendra Modi in 2015, recalling a statement made by him in London that the government “will not resort to retrospective taxation and has demonstrated this position in a number of ways”.
Mr. Thomson said the issue has been dragging on for almost two years and that has resulted in $1 billion loss in value, forcing it to sell assets, postpone investment and cut workforce by 40 per cent.
How the government responded to the company's claims?
Finance Minister Arun Jaitley offered a one-time window in the Union Budget for such retrospective tax dues to be paid, promising to waive penalties and interest dues on the tax liabilities in return.
Over a dozen companies face retrospective tax demands for transactions they completed in the past, following a controversial retro-active tax provision introduced in 2012.
The government will not “coerce” companies like Vodafone Group and Cairn Energy to avail of its one-time offer to settle their retrospective tax cases and it was for them to take a call on it, Finance Minister Arun Jaitley had said.
He had said, "The option before such companies was either to accept the offer of paying principal tax amount and get waiver from interest and penalty, or continue litigation."
What is next?
The Indian government will file its ‘Statement of Defence’ by November and evidential hearing is expected to commence in early 2017, sources said.
