The government has paid the UK’s Cairn Energy £790 million to refund taxes it had collected to enforce a retrospective tax demand, ending a seven-year-old dispute that had tarred India's image as an investment destination.
The company, which is now known as Capricorn Energy plc, said it has received “net proceeds of $1.06 billion”, of which nearly 70% will be returned to shareholders. The tax department had used a 2012 legislation, which gave it powers to go back 50 years and slap capital gains levies wherever ownership had changed hands overseas but business assets were in India, to seek £1.02 billion in taxes from Cairn.
Cairn had in 2006-07 reorganised its India business, which comprised operations of Rajasthan oilfields, prior to its listing on stock exchanges. While the company sold majority holding in the India unit to Vedanta in 2011, it was in 2014 slapped with the tax demand notice over alleged capital gains made on the reorganisation.
The British firm contested the demand, saying all taxes due were duly paid when the reorganisation, which was approved by all statutory authorities, took place.
