UK-based Cairn Energy PLC has said it is looking to settle its decade-long tax dispute with the Indian government following the recent amendments to the retrospective tax law.
“The expected near-term resolution of the India tax dispute would result in a refund to Cairn by the Government of India of Rs 7,900 crore (approximately $1.06bn). In accepting the terms of the new legislation in India, Cairn would be required to withdraw its international arbitration award claim, interest and costs and to end all legal enforcement actions in order to be eligible for the refund,” the company said in a filing to the London Stock Exchange , while offering to pay up to $700 million to its shareholders.
According to draft rules of the Taxation Laws (Amendment) Act, 2021, released by the Central Board of Direct Taxes (CBDT) last week, companies have to file a declaration to “irrevocably withdraw, discontinue and not pursue” any legal proceedings, reported Business Standard.
According to the draft rules, the jurisdictional commissioner will grant approval in 15 days if conditions for eligibility and undertaking to withdraw all cases are satisfactory. The final form of the statutory undertakings was yet to be published by the government, said a Cairn statement.
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The offer to return money seized to enforce retrospective tax demand in lieu of dropping all litigations against the government “is acceptable to us,” Cairn Energy CEO Simon Thomson told PTI in an interview from London.
Cairn Energy will drop cases to seize diplomatic apartments in Paris and Air India airplanes in the US in “a matter of a couple of days” after the refund, he said adding Cairn’s shareholders are in agreement with accepting the offer and moving on.
About Rs 8,100 crore collected from companies under the scrapped tax provision are to be refunded if the firms agreed to drop outstanding litigation, including claims for interest and penalties. Of this, Rs 7,900 crore is due only to Cairn.
The company is planning to use $700 million out of the refund for special dividend and buyback out of this, subject to the resolution of the dispute.
“Payment of the tax refund would enable a proposed return to shareholders of up to $700 million, via a special dividend of $500m and a share buyback programme of up to $200m. The remainder of the proceeds would be allocated to further expansion of the low cost, sustainable production base,” it said.
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