Cairn Energy challenges IT department’s claim

The tax department’s move wiped off a fifth of the company’s market value on Wednesday, with its shares slumping to their lowest since 2008

By Sai Nikesh D

The United Kingdom based oil exploring company Cairn Energy on Wednesday challenged the Indian Tax Department’s claim on the company to pay a tax of more than $ 1.6 billion.

Condemning the demand from the tax department, the company was said to have filed a formal dispute under UK-India Investment Treaty, according to the reports.

When sought clarification on whether the issue would impact the India-UK bilateral relationship, Adish C Aggarwala, Chairman, All India Bar Association, said, “This issue will not have any impact on the bilateral trade between the two countries.”

However, the bilateral trade is an equal requirement for both the economies and there is a responsibility on both the sides to see the issues of this kind are resolved in a proper manner, he added.

He further said that the tax department’s claim on the company was part of its duty to deal with such cases and the demand was made as the company was supposed to pay the tax. Further legal proceedings over the issue are going on, he added.

The claim by the Indian tax department came just ahead of the UK Foreign Secretary, Philip Hammond’s visit to India that started on Wednesday. The UK official was quoted to have told media that he was informed by the Indian Union Finance Minister Arun Jaitley, that the issue was started by the previous government and the present government is powerless to stop it.

The Union Minister was also said to have given a clarification to the UK official that the government will not issue any further notices on the matter under the retrospective tax legislation.

The tax department’s move wiped off fifth of the value of company’s shares on Wednesday, pulling the company to the lowest since 2008.

The issue that dates back to 2007, has its roots when this UK-based company formed Cairn India in 2006, thereby transferring its assets to the new company as a part of its reorganization procedure in 2007 and listing the new company under Initial Public Offer as a launch in stock market.

A statement on Tuesday, says that the tax department’s investigation that started in 2014, was in relation to the company’s transactions in 2007. Post that, Cairn has sold majority of its assets in Cairn India to Vedanta Resources Plc in 2011, with which the company’s stake in Cairn India came down to 10%.

According to reports, Cairn had also sought the compensation of losses it faced due to the stalling of its operations, with the start of investigation. The Union Minister is expected to face queries over the issue during his upcoming meet with the foreign investors in London on Saturday.

This move by the Indian tax department gains importance in the wake of NDA government’s plans towards the facilitation of a tax-friendly regime.

Under this move by the Indian tax department, Cairn also joins the list of multinational giants like Vodafone Group Plc, IBM Corp and Microsoft Corp, among others, who have faced the challenges from the Indian tax collectors earlier.

 

This article was published in The Dollar Business on March 13, 2015.

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