Taxman sells part of Cairn Energy’s stake in Vedanta
TAX DISPUTE IT dept sells shares in firm for $216 million NEW DELHI:
The income tax department has sold off part of British energy firm Cairn Energy Plc’s shares in Vedanta Ltd, that was earlier attached in a tax dispute, for $216 million, Cairn said on Monday quoting a communication from the tax authority.
The Edinburgh-based company, which received 5% stake and preference shares in Vedanta Ltd for its residual stake in erstwhile subsidiary Cairn India that is now merged with Vedanta, said that after the sale by the tax department, the attached shares in Vedanta are down to 3%.
“It is possible that the Indian Income Tax Department may make further sales,” said the company.
Cairn Energy, which sold its Indian arm to Vedanta’s Ltd.’s parent Vedanta Resources Plc in 2011, retained roughly 10% stake in the unit, which was later attached by the tax department to recover alleged tax dues arising from a retrospective change in tax law in 2012.
The tax department is seeking to recover capital gains tax on a 2006 internal reorganization of Cairn India Ltd prior to its listing in 2007 and subsequent sale to Vedanta Resources Plc.
Cairn Energy said it is pursuing restitution of $1.3 billion losses from the Indian government on account of the regulatory action.
After the sale by the taxman, Cairn will write down the carrying value of its investment in Vedanta Ltd resulting in an impairment charge.
Cairn’s demand for compensation for the regulatory action is now part of an international arbitration.
The final hearings are scheduled for two weeks from 20 August in The Hague, said the company.
So far, the tax department has seized dividends due to Cairn from its shareholding in Vedanta totalling about $155 million and has offset a tax rebate of $234 million due to Cairn from overpayment of capital gains tax on a separate matter, the company said.
The tax department claims a principal tax due of about ₹10,200 crore plus applicable interest and penalties.
The company claims the arbitration will result in a binding and internationally enforceable award.
“The group has legal advice confirming that the maximum amount that could ultimately be recovered from Cairn by the Indian income tax department is limited to the value of Cairn UK Holdings Ltd’s assets, principally the ordinary and preference shares in Vedanta Ltd plus the seized dividends and tax refund from 2011,” said the company in an update issued on the tax dispute.