Cairn energy announced on 3 November 2021 that it has entered into undertakings with the Government of India to resolve a dispute regarding a retrospective capital gains tax assessment issued by the India tax authorities in 2016 for an indirect transfer of shares in 2006. The 2006 transfer was not taxable at the time but considering changes in the taxation of indirect transfers introduced by the Finance Act 2012, the retrospective assessment was issued. The assessment has since gone through several appeals in India and at the international level, with a decision issued by the Tribunal of the Permanent Court of Arbitration in December 2020, which found that Cairn could not be subject to such a retrospective assessment. While the Indian government long sought to make such retrospective assessments, amendments were introduced in August 2021 that effectively nullified retrospective taxation of indirect transfers made before 28 May 2012, which is the date Finance Act 2012 was assented (enacted).
Cairn is pleased to announce that it has entered into undertakings with the Government of India in order to participate in the scheme introduced by recent Indian legislation, the Taxation Laws (Amendment) Bill 2021 (the "Taxation Amendment Act"), allowing the refund of taxes previously collected from Cairn in India.
Subject to certain conditions, the Taxation Amendment Act nullifies the tax assessment originally levied against Cairn in January 2016 and orders the refund of INR 79bn (approximately US$1.06bn*) which was collected from Cairn in respect of that assessment.
In order to satisfy those conditions, Cairn will commence the filing of the necessary documentation under rule 11UF(3) of the Indian Income Tax Rules 1962(Rules) intimating the withdrawal, termination and/or discontinuance of various enforcement actions.
Cairn is working collaboratively with the Government of India towards expediting the refund within the process of the Tax Amendment Act Rules. The previously announced special dividend is expected to be paid by early 2022.
Notes to Editor:
Pursuant to the undertakings issued under clause (a) of Rule 11UE of the Indian Income Tax Rules, 1962 (the "Rules"), Cairn UK Holdings Ltd ("CUHL") (together with its parent company Cairn Energy PLC as an "Interested Party", as defined in the Rules, and their related parties) hereby confirms that any claims arising out of or relating to the relevant order(s) (as defined in the Rules) or any related award, judgment or court order, no longer subsist (together the "awards, judgements and court orders"). In particular, CUHL and Cairn Energy PLC confirm that they (and their related parties) have, pursuant to such undertakings:
In the event that the Principal Commissioner for Income Tax either rejects the undertaking in Form No.1 under rule 11UE(1) or the intimation of withdrawal given under rule 11UF(3), or declines to grant the relief set out in the Rules, then such undertakings or intimations (as the case may be) shall be treated as having never been furnished.
*INR Sterling conversion rate on 2 November 2021.