New Delhi: The income-tax department has slapped on UK’s Cairn Energy plc a tax demand notice of over Rs 29,000 crore, including Rs 18,800 crore in backdated interest, the company said on Tuesday. Cairn Energy is the second MNC to have received retrospective tax notice this year after Vodafone Group.
“Cairn UK Holdings, a direct subsidiary of Cairn Energy PLC, is in receipt of an assessment order from the Income-Tax department relating to the intra-group restructuring undertaken in 2006 prior to the IPO of Cairn India in India, which cites a retrospective amendment to Indian tax law introduced in 2012,” said the company in a statement announcing its earnings for 2015.
It said that 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 Rs 10,200 crore (approximately $1.6 billion) plus interest back dated to 2007 totalling Rs 18,800 crore (approximately $2.8billion),” said the company. It said that the total assets of Cairn UK Holdings Limited have a current value of $477.5 million (comprising principally the group’s 9.8 per cent shareholding in Cairn India) and any recovery by the Indian authorities would be limited to such assets, it said.
“Cairn UK Holdings Limited (CUHL) is pursuing its rights under Indian law to appeal the assessment, both in respect of the basis of taxation and the quantum assessed,” said the statement. It said CUHL’s 9.8 per cent shareholding in CIL was originally attached by the income-tax department in January 2014 and CUHL continues to be restricted by the tax authorities from selling such shares.
The group aims for certainty in relation to the tax treatment of all items, it added.
The I-T Department alleges that Cairn Energy made a capital gain of Rs 24,503.50 crore in 2006 when it transferred shares of Indian assets that were held in a subsidiary set up in the tax haven of Jersey, to newly incorporated Cairn India.
It listed Cairn India Ltd on the stock exchanges through an initial public offering (IPO) thereafter. Through the IPO it raised '8,616 crore and then in 2011 went on to sell majority stake in Cairn India to mining giant Vedanta Group for $8.67 billion.
In order to bury the ghost of retrospective tax, Union finance minister Arun Jaitley in the Budget had made a one-time offer to UK’s Vodafone Group plc and Cairn Energy plc to pay principal amount and get waiver on interest and penalty. The notice was, however, issued before Mr Jaitley presented the Union Budget for 2016-17.
“In order to give an opportunity to the past cases which are ongoing under the retrospective amendment, I propose a one-time scheme of dispute resolution for them, in which, subject to their agreeing to withdraw any pending case lying in any court or tribunal or any proceeding for arbitration, mediation under BIPA, they can settle the case by paying only the tax arrears in which case liability of the interest and penalty shall be waived,” Mr Jaitley had said while presenting the budget. Mr Jaitley pointed out that in his last budget , he had assured that this government would not retrospectively create a fresh tax liability.
