The U.K.-based Cairn Energy is working with the Government of India to expedite “documentation and payment of refund” of $1.06 billion of retrospective taxes at the centre of its high-stake dispute with India that it expects to be resolved in the “near term”.
In its half-yearly report released on Tuesday, Cairn said it plans to return $700 million to the shareholders through special dividends and buybacks, out of the expected tax refund from the government.
“Progress in resolving our Indian tax issue and active portfolio management leave Cairn well-positioned to deliver growth from a sustainable business, focused on generating further value and returns for shareholders,” said Simon Thomson, chief executive of Cairn Energy PLC.
Amendment to I-T laws
The government recently amended the income tax laws to scrap the retrospective tax provisions introduced in 2012-13, under which Cairn was taxed in 2014 for a corporate restructuring undertaken in 2006-07.
The tax department subsequently froze the firm’s shares as part of the proceedings and sold them off to recover the claimed tax dues.
The company’s disclosure on Tuesday indicates it is positively examining the provisions of the Centre’s amendments to the problematic tax law.
The changes propose to refund the taxes levied retrospectively if the affected taxpayers drop all pending litigation and forego any interest and damages claims.
The government had issued draft rules to implement the amended law and the final rules are awaited soon, as the consultation period on the draft rules ended last week.
The rules include a requirement by the affected party to ‘indemnify, defend and hold harmless’ the government of all costs and expenses, if a separate interested party such as shareholders, beneficial owners, officers of the firm, brings, files or maintains any claim over the matter, after the dispute is resolved.
Cairn said it was ‘working with Government of India to expedite documentation and payment of refund’.
If the refund came through, it proposed to give its shareholders $ $500 million as a ‘special return’ and deploy up to $200 million for a share buyback programme.
The balance of around $300 million, would bolster its net cash position to ‘pursue value accretive expansion and diversification,’ it said.
An international arbitration tribunal, scrutinising the tax dispute, last year ruled in Cairn’s favour and awarded $1.2 billion in damages to the company. While the government has filed an appeal against the verdict, Cairn has filed lawsuits in several overseas jurisdictions to enforce the tribunal’s award.
In France, the company secured a court’s permission to freeze at least 20 Indian properties in Paris. In the U.S., it is pressing for securing Air India’s assets by arguing that the national carrier is the ‘alter ego’ of the government in an ongoing legal process.