Cairn Energy seeks $5.6 billion compensation from Indian government

UK-based explorer Cairn Energy was forbidden from selling a $950 million-worth residual holding in Cairn India (erstwhile subsidiary) until the completion of a tax investigation.

The company wanted to raise funds for exploration but faced a lengthy investigation into its Indian operations from 2007, when Cairn India was established.

Mining company Vedanta bought 58.5% holding in Cairn India for $8.67 billion in 2011.

Cairn India reported that tax authorities launched a probe over unpaid tax.

Cairn India said it wasn't informed of the nature of the tax probe; however, it added that it might be related to the IPO.

Income Tax officials imposed a tax of Rs.10,247 crore on the profit Cairn had made in 2006 while transferring its assets to Cairn India and listed the business.

In Mar'15, Cairn India had received an income tax notice of Rs.20,495 crore for failing to subtract withholding tax on alleged gains by Cairn UK Holdings, a subsidiary of Cairn Energy.

The tax demand concerned the transfer of Cairn India Holdings Limited's shares by Cairn UK Holdings to Cairn India as a part of internal reorganization and facilitation of IPO of Cairn India.

Cairn Energy had announced it would seek a claim of $700 million from the Centre to compensate for the losses caused by government's actions in the $1.6 billion tax controversy.

On 19 Dec'15, Cairn Energy wrote to Prime Minister Modi and sought coherence on the long-running retrospective tax dispute.

Modi had earlier stated that his government wouldn't resort to retrospective taxation.

In Feb'16, the I-T Department served a tax demand of over Rs.29,000 crore to Cairn (Rs.18,000 crore interest).

In Mar'16, Finance Minister Jaitley suggested a one-time dispute settlement scheme, in which companies pay only tax arrears and interest/penalty would be waived.

In May'16, Cairn wanted to pay Rs.1,537 crore (15% of principal sum) and wanted the freeze on Cairn India shares to be lifted.

UK-based oil and gas company Cairn Energy sought $5.6 billion from the Government of India in compensation for issuing a tax demand of Rs.29,000 crore pertaining to its 10-year-old internal reorganization.

Cairn filed a 160-page statement of claim with a global arbitration body.

Cairn stated that by not treating its investments equitably, India failed to stand by its commitments under the UK-India Investment Treaty.

Cairn sought a compensation of $1.05 billion for the loss suffered by Cairn's 9.8% stake value in Cairn India.

Total compensation ($5.6 billion) would be equal to the raised tax demand and Cairn's stake value in Cairn India.

The Indian government would submit its defense statement to the three-member arbitration panel by Nov'16, and the evidential trial is reported to take place in 2017.