Cairn Energy CEO Simon Thomson has written to Prime Minister Narendra Modi asking him to help resolve the Rs 10,247-crore case that has been dragging on for almost two years now.
The letter, which follows several meetings with finance minister Arun Jaitley and senior finance ministry officials, refers to Modi’s visit to the UK last month where he assured investors the retrospective tax amendment would not be used against investors.
The letter quotes Modi’s comments to the City of London and goes on to say, “However, as you are aware, Cairn Energy’s outstanding retrospective tax issue is yet to be resolved… The matter has been ongoing for almost two years and is having a major detrimental impact on our business and to our UK and international shareholders.”
While invoking its arbitration against the central government in September this year, Cairn Energy had pointed to how, after its money got stuck in India, the firm had to let go 40% of its workforce as it did not have the money to fund other exploration activities. After the sale, Cairn Energy had held on to $1 billion worth shares of Cairn India which the latter was in the process of buying back when the taxman froze the sale.
Prior to selling its Indian arm to the Vedanta Group, Cairn had invested $5 billion in India and Cairn India today produces over 30% of India’s annual crude oil output.
“I would be grateful,” the letter goes on to say, “if you could please clarify the position on Cairn’s retrospective tax case.”
While the arbitration with the government will pick up pace now that the Centre has also appointed its arbitrator, Cairn has also approached the finance ministry’s dispute resolution panel. While the arbitration could take anywhere from a year or two depending on whether the umpire arbitrator is appointed quickly, the reason for approaching the DRP is that even if Cairn does win the arbitration, there is no certainty as to whether it will be able to invoke the award — doing so can take years and, in the case of White Industries, has been pending since 2002. The other reason for approaching the DRP is that, as of now, there is only a draft tax assessment, not a final one.
UK-based parent Cairn has said that while its Indian interests were owned by various overseas subsidiaries, in 2006 it decided to transfer them to Cairn India prior to the public issue.
While arguing against the use of the retrospective tax, Cairn argues that even if, for the sake of argument, the taxable gain was said to have accrued in India, there was no transaction that resulted in a possible capital gains tax — no money changed hands when the shares were transferred, the only time a capital gains tax arose was when the shares were sold to Vedanta and a tax was paid on that. “Any funds realised by CIL (Cairn India Ltd) in the course of an IPO may reflect the value of the downstream assets but it does not give rise to any taxable transaction,” Cairn has written to the DRP.