It all started eight years ago when Edinburgh-based Cairn Energy created a new company Cairn India in 2006 and transferred all of its India assets to it. After transferring the assets, the company listed Cairn India on the stock exchanges through an Initial Public Offer (IPO). According to Cairn, the transfer of assets was part of a reorganization exercise aimed at enabling the IPO in 2007
In 2011, Cairn Energy sold majority stake in its Indian arm to mining giant Vedanta for $8.67 billion and still holds 10% stake in Cairn India
A year later, the Congress-led United Progressive Alliance (UPA) government brought a law that sought to raise claims on past deals
The new law allowed retrospective application of capital gains tax on indirect share transfers, kicking off a series of tax claims on multinational firms leading to disputes.
In January 2014, the tax department contacted Cairn Energy to audit its finances and weigh tax assessments for the financial year 2006-07
The company was also ordered not to sell its 10 per cent holding in Cairn India which was then valued at $1.1 billion.
The tax authorities slapped the $1.6 billion (Rs 10,247 crore) claim stating the firm allegedly made capital gains of Rs 24,503.50 crore when it transferred its India business to the newly incorporated Cairn India in 2006.
Tax authorities are also understood to have stated Cairn Energy received Rs 26,681.87 crore for the asset transfer against its entire investment of Rs 2,178.36 crore in the India business.
The company has responded to the “disappointing” tax claim by filing a notice of dispute under the UK-India Investment Treaty and the two sides are now headed for a round of negotiations failing which an international arbitration panel will be constituted to adjudicate on the matter
Income Tax Department has slapped a Rs 20,495 crore tax demand on Cairn India for failing to deduct withholding tax on alleged capital gains made by its erstwhile promoter,Cairn Energy Plc.
Cairn India said it does not agree with the tax demand and will pursue all possible options to protect its interest.
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