Just a few days after Cairn Energy moved the court in the United States and indicated that it might use company’s “strong powers of enforcement” to recover $1.4 billion from the Indian government, the Centre has shown a more adjusting stance suggesting that it is still open for a constructive settlement of its tax dispute within the existing legal framework
Sources in the know of the matter said that Cairn is talking to the Indian government but is yet to respond based on discussions. If they come on board for a negotiated settlement within the country’s existing legal framework which includes the direct tax resolution of Vivad Se Vishwas scheme, sources said that the government is still willing to settle the matter.
The flexible approach has been shown by India even as it prepares to file an appeal against the Cairn arbitration order and will contest its sovereign rights to tax, sources said. The sources said that the government will also strongly contest other suits filed by Cairn Energy at various other international courts as well.
“The room for a settlement is still open if the company is willing to settle matters under the Indian legal framework. But if this is not going anywhere, legal challenge is just round the corner,” the sources quoted above said.
Sources said that Cairn had conducted transactions through tax havens to evade taxes. In fact, the company set up a tax abusive structure and did not pay taxes anywhere in the world on the gains that it made in India.
“In the said case, it was well within India’s sovereign powers to redress the situation of double non-taxation and tax abuse,” sources said.
If enforcement proceedings are initiated, India is confident to address them and will strongly defend its interests, they added.
The development gains significance as Cairn CEO Simon Thomson was in India recently to have talks with the government to reach an amicable solution.
In December, Cairn Energy won an international arbitration case against the Indian government which claimed Rs 10,247 crore in past taxes over internal reorganisation of Cairn’s India business.
The tribunal in the Netherlands awarded damages of $1.2 billion towards Cairn along with interest and costs, payable by the government.
Cairn Energy had, in 2010-11, sold Cairn India to Vedanta. Post the merger of Cairn India and Vedanta in April 2017, the UK firm’s shareholding in Cairn India was replaced by a shareholding of about 5 per cent in Vedanta issued together with preference shares.
Along with attaching its shares in Vedanta, the Tax Department seized dividends of around Rs 1,140 crore due to it from the shareholdings and set off an Rs 1,590 crore tax refunds against the demand.
In 2015, Cairn initiated an international arbitration to challenge retrospective taxation.
Recently, Minister of State for Finance, Anurag Thakur told the Parliament that the order passed in Cairn Group’s case is under consideration of the government.