British oil explorer Cairn Energy has sought £3.74 billion in compensation from the Indian government for raising a retrospective tax demand of £2.90 billion on 10-year old internal reorganisation of its India unit.
In a 'statement of claim' filed with an international arbitration panel on June 28, the Edinburgh-based company sought withdrawal of the tax demand and declaring that 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."
It sought $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. "In the alternative, and should the (arbitration) tribunal determine not to order India to refrain from enforcing its unlawful tax demand", Cairn sought to be compensated of breaches of the investment treaty by being paid for the loss of value of its holding in Cairn India as well as interest and penalties, totalling £3.74 billion.
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. A three-member arbitration panel headed by Geneva-based arbitrator Laurent Levy began hearing Cairn Energy's plea against tax demand in May and the company filed its 'statement of claim' late last month.
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 £1.02 billion 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. This year, a final assessment order was slapped on it that included a £1.88 billion of interest on top of £1.02 billion principal tax amount.
