Cairn accepts refund offer to settle tax dispute with India
FIRM SAYS WILL DROP MOVE TO SEIZE FOREIGN PROPERTIES
UK-BASED Cairn Energy said on Tuesday (7) it will drop legal action to seize Indian properties in countries from France to the US, within days of getting a $1 billion (£725 million) refund resulting from scrapping a retrospective tax law.
India passed laws in 2012 which allowed it to claw back billions of dollars from foreign firms from past deals that involved Indian assets. Two firms – Britain’s Cairn Energy and Vodafone – successfully challenged the tax claims in international arbitration courts – rulings that India refused to accept.
Cairn this year moved to seize properties in Paris and Manhattan owned by the Indian state in an attempt to get back the $1.2bn (£870.7m) that the arbitration tribunal ruled it was owed by New Delhi.
In an interview on Tuesday, Cairn CEO Simon Thomson said the firm will not pursue cases to seize diplomatic apartments in Paris and Air India airplanes in the US in “a matter of a couple of days” after the refund. Cairn’s shareholders are in agreement with accepting the offer and moving on, Thomson added.
The firm, which gave India its biggest onland oil discovery, described as bold “the legislation passed last month to cancel a 2012 policy that gave India’s tax authorities power to go back 50 years and slap capital gains levies wherever ownership had changed hands overseas, but where business assets were in India.
The offer to return money seized to enforce retrospective tax demand in lieu of dropping all litigations against the government “is acceptable to us,” Thomson said in an interview from London.
“Some of our core shareholders like BlackRock and Franklin Templeton agree (to this). Our view is supported by our core shareholders (that) on balance it is better to accept and move on and be pragmatic. Rather than continue with something negative for all parties, which could last for many years,” he said.
When the law was scrapped last month, India’s revenue secretary Tarun Bajaj said the decision was “a very good sign for foreign investors”.
“We want to give a message to investors, both domestic and foreign, that the country believes in stability and certainty of taxation,” he said.
About `81bn (£800m) collected from companies under the scrapped tax provision is to be refunded if the firms in question agree to drop outstanding litigation, including claims for interest and penalties. Of this, `79bn (£780m) is due to Cairn.
“Once we get to final resolution, part of that resolution is us dropping everything in terms of litigation. We can do that within a very short period of time, just a matter of a couple of days or something,” Thomson said. “So we are preparing on the basis of getting this resolution quickly, all these cases being dropped, and putting all this behind.”
He said all enforcement proceedings brought because of the Indian government’s refusal to honour an international arbitration award asking it to return the value of money seized to enforce the retrospective tax demand, will be dropped.
“Everything will be dropped. There will be no more litigation, that will be it. It will clear the matter up,” he said.
Cairn in its half-yearly report on Tuesday said it will return up to $700m (£507m) of the `7,900 crore (£768m) it is supposed to get from the Indian government, to “shareholders via special dividend and buyback.”
“Payment of the tax refund would enable a proposed return to shareholders of up to $700 million, via a special dividend of $500m and a share buyback programme of up to $200m. The remainder of the proceeds would be allocated to further expansion of the low-cost, sustainable production base,” it said.
Thomson said Cairn had a “good, open and transparent line of communications with the Government of India” on finding a resolution to the retro tax issue.
“We were pleased when the Government of India made what we thought was a pretty bold move, in terms of enactment of the legislation,” he said. “The intention of the government, we are obviously aligned with it, is to get this resolved as quickly as possible. Hopefully, that means within the next few weeks. It is good not only for us and our shareholders but also importantly for India.”
“We are keen to get back to Cairn being talked about in terms of success in Rajasthan. I think moving on from this will allow us to do that,” he said referring to the prolific oil discovery the firm made in Barmer.