Govt accepts Cairn Energy's offer on retrospective tax

The government has accepted Cairn Energy Plc's undertakings, which would allow for the refund of taxes, moving towards ending a retrospective tax dispute with a firm that gave India its largest oilfield. 

Earlier this month, the company had given required undertakings indemnifying the Indian government against future claims and agreeing to drop any legal proceedings anywhere in the world.

The government has now accepted it and issued Cairn a so-called 'Form-II', committing to refund the tax collected to enforce the retrospective tax demand, two sources with direct knowledge of the development told news agency PTI.

Following the issuance of Form-II, Cairn will now start withdrawing all cases in international courts. Once this is complete, the company will be issued a Rs 7,900 crore refund by the government. Adding the withdrawal of cases may take up to three-four weeks.

The government in August enacted a new legislation to drop Rs 1.1 lakh crore in outstanding claims against multinationals such as telecom group Vodafone, a pharmaceuticals company Sanofi and brewer SABMiller, now owned by AB InBev, and Cairn, in an attempt to repair India's damaged reputation as an investment destination.

About Rs 8,100 crore collected from companies under the scrapped tax provision will be refunded if the firms agreed to drop outstanding litigation, including claims for interest and penalties. Of this, Rs 7,900 crore is due only to Cairn.

Companies were required to indemnify the Indian government against future claims and withdraw any pending legal proceedings.

Cairn on November 3 had stated that it has "entered into undertakings with the Government of India to participate in the scheme introduced by recent Indian legislation, the Taxation Laws (Amendment) Bill 2021, allowing the refund of taxes previously collected from Cairn in India".

The PTI sources said Cairn's undertaking furnished in Form No. 1 under the rule 11UE(1) of the amended law has been accepted by the Principal Commissioner for Income Tax.

India issued Cairn with tax claims six years ago, and in December 2020 the company won an international arbitration against such demands.

In December, the international arbitration tribunal overturned a levy of Rs 10,247 crore in taxes on a 2006 reorganisation of Cairn's India before its listing and asked the Indian government to return the value of shares seized and sold, dividend confiscated, and tax refund withheld. This totalled $1.2 billion, plus interest and penalty.

The government initially refused to honour the award, forcing Cairn to identify $70 billion of Indian assets from the US to Singapore to enforce the ruling, including taking flag carrier Air India Ltd to a US court in May. In July, a French court paved the way for Cairn to seize real estate belonging to the Indian government in Paris.

All these litigations will now be dropped, sources said.

With inputs from PTI