Modi-Trump meet: Cairn wants US to intervene in its tax dispute with India

Directors of UK-based Cairn Energy Plc have raised the issue of the retrospective tax on them with senior officials in the American administration, ahead of Prime Minister Narendra Modi’s visit to the US.

The company is involved in a Rs 10,247-crore tax dispute with the Indian government. The stakeholders in the company have pleaded that US officials raise the issue with Modi when he comes to the US for a two-day visit starting this weekend.

Todd M Hunt, president of Atropos Exploration Company, and a non-executive director on Cairn Energy Plc’s board, has written to the US House of Representatives, secretary of commerce Wilbur Ross and secretary of state Rex W Tillerson. India’s retrospective tax legislation, his letters say, are having “a severe impact on Cairn’s shareholders and India’s image as an international investment destination”.

Los Angeles-based Hotchkis & Wiley that has an investment in Cairn Energy has also written to the American administration. Saying that unless the retrospective amendment issue was resolved, “the lack of clarity in the (Indian) government’s approach to taxation risks is undoing good work in other areas of the economy and will continue to damage India’s reputation among investors”.

“Whilst in opposition and in the early years following his election, Prime Minister Modi promised to end the previous government’s stance and replace it with a non-adversarial and conducive tax environment. Regrettably, this has not yet happened,” Hunt wrote in his letter to Ross.

The income tax authorities here have blocked earlier dividend payment dues from Vedanta (which had bought Cairn’s erstwhile Indian arm) to Cairn Energy Plc. And, are mulling over the sale of Cairn’s holding in erstwhile Cairn India, which now stands merged with Vedanta.

Vedanta owed $104 million, including historical dividends of $53 mn and a further dividend of $51 mn.

Cairn Energy is locked in an arbitration with the Indian government. It is seeking full restitution for its charges of treaty breaches resulting from the expropriation of its investment in India in 2014, attempts to enforce retrospective tax measures and failure to treat the company and its investments fairly and equitably.

In addition to resolution of the retrospective tax dispute, its claim seeks damages equal to the value of the group’s residual shareholding in Cairn India at the time it was attached (approximately $1 billion). The company commenced international arbitration proceedings against Indian tax authorities in 2015.

Cairn UK Holdings Ltd (CUHL), a direct subsidiary of Cairn Energy Plc, received an assessment order from the Indian tax authorities relating to the intra-group restructuring undertaken in 2006 prior to the Initial Public Offer of equity by Cairn India.

The tax authorities cited a retrospective amendment to the Indian law, introduced in 2012, and claimed Rs 10,200 crore ($1.5 billion) plus interest backdated to 2007 totalling Rs 18,800 crore ($2.8 bn). The total assets of CUHL comprise the group’s 9.8 per cent shareholding in Cairn India, which has since been converted to a shareholding in Vedanta.