India refunds Rs 7,900 crore to Cairn Energy to settle retro tax dispute

The Government of India has refunded Rs 7,900 crore to Britain’s Cairn Energy Plc after 7 years-long dispute over the retrospective taxes. Cairn Energy, currently known as Capricorn Energy Plc, has said the government has paid the tax refund and the “net proceeds of USD 1.06 billion have been received.”

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A circular is expected to be released in early March “detailing the shareholder resolutions required in connection with the proposed shareholder return of up to US$700 million, comprising a US$500 million tender offer and US$200 million ongoing share repurchase programme,” said the British company, according to the PTI report.

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British energy giant Cairn Energy had last month finished all required procedures to get the Rs 7,900 crore tax refund from the Indian Government.

Capricorn Energy CEO Simon Thomson earlier stated that the company enters 2022 well-positioned to generate another significant capital return for shareholders, having completed all steps required to receive an India tax refund.

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Cairn withdraws all lawsuits

In 2006-07, Cairn had reorganized its India business, which comprised operations of prolific Rajasthan oil fields, before its listing on the stock exchange. While the firm sold the majority holding in the India business to Vedanta in 2011. In 2014, it was charged with the tax demand notice over alleged capital gains made on the reorganization, as reported by PTI.

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The IT Department has asked for Rs 10,247 crore in taxes from Cairn. However, Cairn dragged the government to international arbitration over the charge and got a favourable ruling that asked India to refund the tax collected.

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In January 2022, Capricorn Energy had withdrawn all tax cases against the Indian government, which cleared the way for the authorities to refund Rs 7,900 crore to the British explorer. Capricorn’s action was the final required step by the company under the rules of India’s Taxation (Amendment Act) 2021. After this, the company submitted the necessary form to the Income Tax department which permitted the government to proceed to the final stage.

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Retro tax dispute

India put an end to 17 long-drawn disputes over taxation of overseas sale of Indian assets. In the government’s settlement scheme, an anti-abuse provision from the Income Tax Act introduced in 2012 during the previous United Progressive Alliance (UPA) government was applied to nullify tax demands raised or confirmed before 28 May 2012.