Tax notice to Cairn worrying investors looking at India: UKIBC

The Indian tax department slapping USD 1.6 billion retrospective tax bill on Cairn Energy and another USD 3.2 billion on Cairn India has caused many global investors to worry about the risks of investing in India, the UK-India Business Council (UKIBC) has said.
In a note on last week's visit of Finance Minister Arun Jaitley to London, UKIBC Group CEO Richard Heald said that the tax demand came at a time when the Indian government has been publicly talking about the negative impact of retrospective taxation on investor sentiment towards India.
Jaitley in his address to UK corporates on investment opportunities in India "claimed that these actions were 'legacy matters' and did not contradict statements by NDA minister's viz new retrospective tax demands and, moreover, that investor sentiment should not be affected by these demands," the note said.

"What is undoubtedly true is the tax department's actions have not only damaged Cairns employees and shareholders, but have caused many global investors to worry about the risks of investing in India.
"While we welcome the decision of the Indian Government not to challenge the recent rulings in favour of Shell and Vodafone in the Mumbai High Court, UKIBC continues to believe that the most effective resolution of all these matters is by a repeal of the 2012 amendment," Heald said.
The Income Tax Department first slapped Scottish oil explorer Cairn Energy with a Rs 10,247 crore tax demand for an alleged Rs 24,500 crore capital gains it made in 2006 while transferring all its India assets to a new company, Cairn India, and getting it listed on the stock exchanges.

It followed it up with a Rs 20,495 crore demand on Cairn India for failing to pay taxes on gains made by its former parent in a share transfer transaction about eight years ago. This demand comprised of Rs 10,248 crore in tax and the remainder in interest payout.

Cairn Energy, it said, has invested USD 5 billion in India over the last two decades, creating jobs and energy in Rajasthan, and enabling thousands of Indian investors to take a stake in Cairn India.
UKIBC said it was encouraging to hear from Jaitley that the Government's roadmap for India was more investment and creating an investor friendly environment.

"Taken together with the passage of the Insurance Bill a day earlier, investors were encouraged to hear the Government's resolve on other crucial reforms such as the Land Acquisition Bill and Coal auctions," it said.
Among the other areas highlighted for potential growth and collaboration were smart cities, digital innovation, financial sector, advanced engineering, education and training and infrastructure.