Cairn Energy files claim for $5.6 billion compensation from India over tax demand

Cairn Energy demanded a compensation of whopping $5.6 billion from the Indian government for raising a retrospective tax demand of Rs 29,047 crore.

The British explorer has filed a claim with an international arbitration panel, seeking withdrawal of the tax demand and declaring India has "failed to uphold its obligations" under the UK-India Investment Treaty by not giving its investments in the country "fair and equitable treatment."

Cairn Energy has demanded $1.05 billion in compensation for the loss of value its 9.8 per cent shareholding in its erstwhile subsidiary Cairn India suffered following Income Tax Department raising the tax demand in January 2014 and attaching the shares.

The total compensation sought is equal to the tax demand raised and the value of Cairn Energy's 9.8 per cent shareholding in Cairn India.
Meanwhile, the Indian government will file its 'Statement of Defence' by November and evidential hearing is expected to commence in early 2017, sources said.

Income Tax Department had in January 2014 slapped a draft tax assessment of Rs 10,247 crore on Cairn Energy on alleged capital gain it made when it in 2006 transferred its India assets to a new subsidiary, Cairn India and listed the firm.

The British firm sold majority stake in Cairn India to Vedanta Resources in 2011 but still holds 9.8 per cent stake in the company, which was attached by Income Tax Department.

"If Cairn had any idea that India might later change its source rule to impose capital gains tax on routine transfer of shares in non-Indian companies - and retroactively seek to collect an amount of tax that would render the entire IPO transaction value-destructive - cairn would not have undertaken the reorganisation or entrusted its listing to the Indian markets. "It would instead have created a different transactional structure and pursued an IPO on a UK exchange," the British company said in its 'Statement of Claims'.

The company is claiming full compensation for the USD 1 billion value lost following the tax notice and freezing of its 9.8 per cent shares in Cairn India.

Cairn Energy still holds 9.8 per cent in Cairn India which the I-T Department has barred it from selling.

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