Indian tax dispute

RNS Number : 0777H

Cairn Energy PLC

10 March 2015

 



FOR IMMEDIATE RELEASE                                                                                        10 March 2015

CAIRN ENERGY PLC ("Cairn")

 Indian tax dispute

Cairn confirms it has instructed counsel to file a Notice of Dispute under the UK-India Investment Treaty in order to protect its legal position and shareholder interests having today received a draft assessment order from the Indian Income Tax Department.

The draft order addressed to Cairn's subsidiary, Cairn UK Holdings Limited, is in respect of fiscal year 2006/7 to the amount of $1.6 billion plus any applicable interest and penalties.

Correspondence received from the Income Tax Department indicates that the assessment stems from amendments introduced in the 2012 Finance Act which seek to tax prior year transactions under retrospective legislation. The transactions subject to the assessment are those undertaken to effect the group reorganisation that was required to enable the Initial Public Offering of Cairn India Limited (CIL) in 2007.

Since the original contact from the Income Tax Department in January 2014, Cairn has continued to confirm with its advisers that throughout its history of operating in India, the Company has been fully compliant with the tax legislation in force in each year and paid all applicable taxes. 

Cairn strongly contests the basis of the draft assessment and the Notice of Dispute is supported by detailed legal advice on the strength of the legal protections available to it under international law.  Under the terms of the UK-India Investment Treaty, the Government of India and Cairn are now required to enter a period of negotiations to seek a resolution to the dispute. To the extent that a satisfactory resolution is not reached during that period, an international arbitration panel will be constituted to adjudicate on the matter.

Cairn continues to be restricted by the Indian Income Tax Department from selling its 10% shareholding in CIL, currently valued at approximately US$700million. Supported by detailed legal advice, on the strength of the legal protections available to it under international law, Cairn does not intend to make any accounting provision in respect of the draft tax assessment. In addition, Cairn will seek restitution of losses resulting from the attachment of its CIL stake since 2014.

Simon Thomson, Chief Executive, Cairn Energy PLC said:

"Cairn has consistently confirmed that it has been fully compliant with all relevant legislation and paid all applicable taxes in India and we are confident of our position under the UK-India Investment Treaty.

Against a backdrop of regular engagement with the Government of India since January 2014 it is very disappointing to have received a draft assessment order at this time. Since the election of the BJP, senior Government Ministers have consistently commented on the negative impact the issue of retrospective taxation has had on international reputation and investor sentiment towards India.

This issue is confined to our interests in India and the Group remains well funded to deliver all of our objectives and commitments and we look forward to moving forward with our strategy whilst this issue is resolved under legal process."

Investor Conference Call Tuesday 10 March 2015 17.30

Hosted by Simon Thomson, Chief Executive and James Smith, Chief Financial Officer

Dial-in details: 

Participant Number: [phone]

Conference ID:  4998098

Enquiries to:

Analysts / Investors

David Nisbet, Corporate Affairs                                                                                  Tel: [phone]

Media

Patrick Handley, David Litterick

Brunswick Group LLP                                                                                                Tel: [phone]

NOTES TO EDITORS

1.       In January 2014, Cairn received notices from the Income Tax Department of India citing the 2012 Retrospective Legislation and requesting information relating to the group reorganisation in 2006.

2.       The Income Tax Department provisionally attached the company's remaining 10% shareholding in CIL, then valued at approximately US$1billion.

3.       In 2006, CIL incorporated; 100% owned subsidiaries incorporated outside India were transferred to CIL also a 100% owned company prior to IPO.  No third party involved in this transaction.

4.       In 2006, the group reorganisation steps were submitted to the authorities in India and approved by the RBI, FIPB and SEBI.

5.       Pre and post the entire restructuring Cairn Energy PLC ultimate parent company retained majority control; no new value crystallized in restructuring the group so there was no taxable gain. 

6.       In 2007, CIL listed on the Bombay Stock Exchange, Nifty 50 Company, with an independent Board and Indian management although Cairn Energy PLC remained its controlling shareholder.

7.       In 2011, the Cairn Energy PLC Vedanta transaction approved by the Government of India; Vedanta secured controlling shareholding in CIL, Cairn Energy PLC's stake now reduced to ~10%.

8.       Cairn has been an investor for almost twenty years in India and has created a legacy asset for the country.  Our former Indian business has the potential to provide more than thirty percent of the country's daily crude production and to generate more than US$100billion revenue for the national and state exchequers. 

 

END

 

 

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