Cairn writes to Modi on retrospective tax case

Cairn Energy CEO Simon Thomson wrote the tax issue had been dragging on for almost two years that has resulted in $1-bn loss in value

British oil firm Cairn Energy Plc has written to Prime Minister Narendra Modi, seeking clarity on its Rs 10,247-crore retrospective tax dispute in the light of his statement that the government will not resort to retrospective taxation.

Cairn Energy Chief Executive Officer Simon Thomson wrote to Modi recalling his statement in London that the government “will not resort to retrospective taxation and has demonstrated this position in a number of ways”.

Stating that Cairn’s retrospective tax issue was yet to be resolved, he said it had been dragging on for almost two years that had resulted in $1-billion loss in value, forcing it to sell assets, postpone investment and cut workforce by 40 per cent.

WHAT THE CEO WROTE

• Cairn Energy CEO Simon Thomson wrote the tax issue had been dragging on for almost two years that has resulted in $1-billion loss in value
   
• He said it forced the firm to sell assets, postpone investment and cut workforce by 40%
   
• Thomson said the firm wanted a “constructive and open dialogue with India and would welcome the opportunity to proceed to a satisfactory resolution which is beneficial to both India and Cairn Energy Plc”

In January 2014, Cairn was slapped with a Rs 10,247-crore assessment notice on alleged capital gains made on a 2006 internal reorganisation. However, no tax demand has been raised so far.

“Following your public comments in London, I would be grateful if you could please clarify the position on Cairn’s retrospective tax case,” he wrote.

The company denied any tax was due even if the retrospective amendments to Income Tax Act are applied as the group reorganisation had not resulted in any real income accruing to it.

“The actions of the Indian income tax department in pursuing the retrospective tax claim have resulted in a $1-billion value loss to Cairn’s shareholders and we have had to sell assets and postpone investment and make a 40 per cent reduction to our workforce.”

“This is a very unfortunate conclusion to our 20-year investment in India where Cairn has been a model corporate citizen and created a legacy asset which is seen as an excellent example of what can be achieved through India and UK cooperation,” he added.

Thomson said the company wanted a “constructive and open dialogue with the Government of India and would welcome the opportunity to proceed to a satisfactory resolution which is beneficial to both India and Cairn Energy Plc”.

The income tax department says Cairn Energy allegedly made a capital gain of Rs 24,503.50 crore in 2006 while transferring all its India assets to a new company, Cairn India, and getting it listed on the stock exchanges.

Cairn Energy, which had in 2011 sold majority stake in its Indian unit to mining group Vedanta for $8.67 billion, still holds 9.8 per cent stake in Cairn India. But it has been barred by the income tax department from selling this stake.

The tax matter “has been ongoing for almost two years and is having a major detrimental impact on our business and to our UK and international shareholders”, he said, expressing willingness to meet Modi and discuss the issue.