Edinburgh explorer appoints lawyers

Cairn to fight £1 billion ‘unpaid tax’ claim from India

Simon ThomsonOil explorer Cairn Energy is contesting a $1.6 billion (£1bn) demand issued by the Indian authorities for unpaid tax and has instructed lawyers to protect shareholder interests.

The Edinburgh-based firm said in a statement issued after the London market closed that it has “instructed counsel to file a Notice of Dispute under the UK-India Investment Treaty in order to protect its legal position and shareholder interests having today received a draft assessment order from the Indian Income Tax Department”.

The draft order addressed to Cairn’s subsidiary, Cairn UK Holdings Limited, is in respect of fiscal year 2006/7  and also seeks interest and penalties.

Cairn said the demand relates to the flotation of Cairn India Limited (CIL) in 2007.

The statement came the company revealed a fall in annual after tax loss to £253 million (2013: £369m).

Cairn said: “Since the original contact from the Income Tax Department in January 2014, Cairn has continued to confirm with its advisers that throughout its history of operating in India, the company has been fully compliant with the tax legislation in force in each year and paid all applicable taxes. 

“Cairn strongly contests the basis of the draft assessment and the Notice of Dispute is supported by detailed legal advice on the strength of the legal protections available to it under international law.”

Under the terms of the UK-India Investment Treaty, the Government of India and Cairn are now required to enter a period of negotiations to seek a resolution to the dispute.

To the extent that a satisfactory resolution is not reached during that period, an international arbitration panel will be constituted to adjudicate on the matter.

Cairn continues to be restricted by the Indian Income Tax Department from selling its 10% shareholding in CIL, currently valued at approximately $700million.

The company says it does not intend to make any accounting provision in respect of the draft tax assessment. In addition, Cairn will seek restitution of losses resulting from the attachment of its CIL stake since 2014.

Simon Thomson, chief executive, said: “Cairn has consistently confirmed that it has been fully compliant with all relevant legislation and paid all applicable taxes in India and we are confident of our position under the UK-India Investment Treaty.

“Against a backdrop of regular engagement with the Government of India since January 2014 it is very disappointing to have received a draft assessment order at this time. Since the election of the BJP, senior Government Ministers have consistently commented on the negative impact the issue of retrospective taxation has had on international reputation and investor sentiment towards India.

“This issue is confined to our interests in India and the Group remains well funded to deliver all of our objectives and commitments and we look forward to moving forward with our strategy whilst this issue is resolved under legal process.”

On the annual results, Mr Thomson said: “Cairn enters 2015 in a strong position with further drilling planned in Senegal to evaluate the scale of this world class asset. We are preparing, along with our joint venture partners, for a multi-well exploration and appraisal programme that has the ability to add substantial value for the company and all stakeholders.

“In the last twelve months, we have actively managed the portfolio and streamlined the business to provide the Group with continued financial flexibility to deliver our active exploration, appraisal and development programmes.”

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