20 Sep 2017
Update on India tax dispute
Cairn provides a procedural update on its dispute with the Government of India under the UK India Bilateral Investment Treaty (the “Treaty”).
The arbitration proceedings are well advanced, and the Tribunal and parties have now agreed the process and timetable for finalising document production, submissions and hearings. This includes some extensions to the previously agreed schedule, and taking into account the Tribunal and Parties' availability, the final hearing has now been scheduled for August 2018.
The Tribunal stated that it expects the parties to strictly adhere to the deadlines set out in the amended procedural calendar and it will make appropriate arrangements to progress with the drafting of the award as expeditiously as possible.
|David Nisbet||Corporate Affairs||0131 475 3000|
|Linda Bain||Cairn Energy PLC||0131 475 3000|
|Patrick Handley||Brunswick Group LLP||0207 404 5959|
|David Litterick||Brunswick Group LLP||0207 404 5959|
NOTES TO EDITORS
Cairn UK Holdings Limited (“CUHL”), a direct subsidiary of Cairn Energy PLC, received an assessment order in 2016 from the Indian Income Tax Department (IITD) relating to the intra-group restructuring undertaken in 2006 prior to the IPO of Cairn India Limited (CIL) in India, citing a retrospective amendment to Indian tax law introduced in 2012. Cairn strongly contests the basis of this attempt to tax the group retrospectively for an internal restructuring.
The assessment order is in the amount of INR102bn (approximately US$1.5bn). Interest in the amount INR188bn (approximately US$3.2bn) was originally charged from 2007, however this was quashed by the Income Tax Appellate Tribunal in late 2016. Following that, the IITD issued a revised demand including interest running from February 2016 i.e. 30 days after the date of the assessment order. That interest currently amounts to INR14.4bn (approximately US$224m). The total assets of CUHL have a current value of US$863.1m (comprising principally the group's shareholding in Vedanta Limited) and any recovery by the Indian authorities would be limited to such assets.
CUHL’s original 9.8% shareholding in CIL (now ~5% in VL) was attached by the IITD in January 2014 and CUHL continues to be restricted by the IITD from selling such shares. Additionally, the IITD has seized dividend income due to CUHL from VL resulting in an exceptional impairment of US$104.7m recorded in the Income Statement at 30 June 2017.
A tax refund in respect of financial year 2011-12 in the amount of INR15.9bn (approximately US$249m) which became due to CUHL as a consequence of a successful appeal by the Company to the Delhi High Court has also been directed to the IITD to be set against the 2006-7 liability and Cairn’s claims under the international arbitration have been adjusted to include this.
Cairn commenced international arbitration proceedings against the Republic of India under the UK-India Bilateral Investment Treaty (the “Treaty”) in 2015, on the basis that India’s actions have breached the Treaty by (1) expropriating Cairn’s property without adequate and just compensation, (2) denying fair and equitable treatment to Cairn in respect of its investments and (3) restricting Cairn’s right to freely transfer funds in connection with its investment. Based on detailed legal advice, Cairn is confident that it will be successful in such arbitration.
The seat of arbitration has been agreed as The Hague in the Netherlands and Cairn has filed its Statement of Claim which clearly demonstrates that applying the retrospective amendment to Cairn and seizing US$1bn worth of CIL shares was in breach of the Treaty’s requirements of fair and equitable treatment and its protections against expropriation.
Cairn has asked the arbitration panel either to order India to withdraw its unlawful tax demand and compensate Cairn for the harm suffered by the seizure of the CIL shares, being not less than US$1.1bn (plus costs); or, if the tax demand remains in place, compensate Cairn for the quantum of the tax assessment and the harm suffered by the seizure of the CIL shares. These claims were subsequently updated to include the US$249m tax refund referred to above.
About Cairn Energy PLC
Cairn is one of Europe's leading independent oil and gas exploration and development companies and is listed on the London Stock Exchange. Cairn has discovered and developed oil and gas reserves in a variety of locations around the world.
Cairn’s business operations are focused on frontier exploration acreage in North West Europe, North West Africa and the North Atlantic, underpinned by interests in development assets in the North Sea. Cairn has its headquarters in Edinburgh, Scotland supported by operational offices in London, Norway and Senegal.
Cairn and Corporate Responsibility
Cairn is a signatory to the UN Global Compact and our core values of respect, responsibility, relationships and our commitments towards people, the environment and society are enshrined in our Business Principles, which are available on the Cairn website at https://www.cairnenergy.com/working-responsibly/policies-and-principles/
Cairn became a participating company in the Extractive Industry Transparency Initiative (EITI) in September 2013. The EITI is a coalition of governments, companies and civil society, who have adopted a multi-stakeholder approach to applying the EITI global standard promoting transparency of payments in the oil, gas and mining sectors http://eiti.org/
For further information on Cairn please see: www.cairnenergy.com