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Moves on to recover Rs10,247 cr retrospective tax from Vedanta

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19 June 2017

The Income Tax Department has ordered action against Cairn Energy Plc to recover Rs10,247 crore in retrospective tax, after the British oil firm lost a challenge to the move before an international arbitration panel.

The department ordered taking away $104 million dividend due to it from its remaining stake in the erstwhile subsidiary Cairn India (now Vedanta Ltd) and another Rs1,500 crore of tax refund due to it.

A statement from Cairn Energy Plc today said the Indian Income Tax Department has issued an order to Vedanta Ltd directing it to pay the government any sums that were due to the Edinburg-based company. According to the company, Vedanta owes $104 million, including historical dividends of $53 million and a further dividend of $51 million after the merger of Cairn India and Vedanta.

The 16 June direction comes even as of 9 June this year, a tribunal issued a formal order memorialising the numerous confirmations from the Indian government that the dividends were no longer restricted and authorising that order be provided to Cairn India, now Vedanta, following the merger of two companies.

According to PTI report citing a source, the I-T Department will now move to take over the 9.8 per cent shareholding Cairn Energy had in Cairn India.

Cairn Energy, however, said it will continue with the international arbitration proceedings against the retrospective tax demand.

''Cairn is seeking full restitution for (UK-India Bilateral Investment Treaty) breaches resulting from the expropriation of its investments in India in 2014, the attempts to enforce retrospective tax measures and the failure to treat the company and its investments fairly and equitably,'' it said.

The company said it has a high level of confidence in its case under the treaty and, 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. The seat of the arbitration is The Hague in the Netherlands and final hearings for the tribunal are scheduled for January 2018.

''Cairn UK Holdings Limited (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 IPO of Cairn India. It cited a retrospective amendment to the Indian tax law introduced in 2012 and claimed Rs10,200 crore (approximately $1.5 billion) plus interest back dated to 2007 totalling Rs18,800 crore (approximately $2.8 billion). The total assets of CUHL comprise the group's 9.8 per cent shareholding in Cairn, which has now been converted to a shareholding in Vedanta and any recovery by the Indian authorities would be limited to such assets,'' Cairn Energy Plc said.





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