New Delhi, March 10 (IANS): British oil giant Cairn Energy said on Tuesday that it is in talks with the Indian government to resolve a tax dispute that has put on hold the sale of its 10 percent stake in Cairn India Ltd.
"We note the comments made by the new BJP government about the impact of retrospective tax legislation and the negative signal it sends to the international investment community," Cairn chairman Ian Tyler said in the company earnings statement for 2014.
"Our approach to date has been to focus on engagement with the government of India and resolving this matter clearly continues to be a high priority," he added.
The company faces a potential tax demand on an alleged Rs.24,500 crore capital gains it made in 2006 when it transferred all its India assets to a new company, Cairn India, which got listed on the stock exchanges.
Cairn, however, has been barred from selling its residual stake in Cairn India.
Cairn Energy, which had in 2011 sold majority stake in its Indian arm to mining company Vedanta for $8.67 billion, still holds 9.8 percent stake in Cairn India.
"In early 2014, Cairn received notice from the income tax department, citing 2012 retrospective legislation and requesting information relating to a group re-organisation in 2006," Cairn chief executive Simon Thomson said.
"At the same time, the income tax department restricted Cairn from accessing the value of its remaining 10 percent shareholding in Cairn India Ltd. (CIL), then valued at around $1 billion," he added.
The restraint on selling CIL stake forced Cairn to borrow to finance its North Sea development project and to re-size the company.
"The priority was to retain and protect the core technical, commercial and financial competencies and reducing costs. The resulting new organisational structure was completed in early 2015 with a 40 percent reduction in the number of employees and contractors in the business," Thomson said.
Retrospective taxation has evoked much criticism from domestic and overseas investors, notably Britain-based telecom major Vodafone.
Vodafone was slapped with a Rs.20,000 crore retrospective capital gains tax after it acquired the telecom assets of Indian conglomerate Essar Group via Vodafone Mauritius.
In this connection, in reply to a question in the Rajya Sabha, Minister of State for Finance Jayant Sinha said on Tuesday, without naming Vodafone, that the "government has accepted the order of the Bombay High Court in favour of a telecom company in a transfer pricing case after carefully examining the order and finding merit in the same".
In line with his promise that India will not levy any tax with retrospective effect, Finance Minister Arun Jaitley in the budget for 2015-16 announced that the government would delay by two years the implementation of the planned General Anti-Avoidance Rules (GAAR), which will be applied prospectively from fiscal 2017-18.
GAAR, proposed by then finance minister Pranab Mukherjee in budget 2012-13, is an anti-tax avoidance rule, which prevents tax evaders from routing investments through tax havens like Mauritius, Luxembourg and Switzerland.