Cairn Energy chief executive Simon Thomson wrote to PM Modi recalling his statement in London that the government “”will not resort to retrospective taxation and has demonstrated this position in a number of ways”.
Stating that Cairn’s retrospective tax issue is yet to be resolved, he said it has been dragging on for almost two years that has resulted in $1 billion loss in value, forcing it to sell assets, postpone investment and cut workforce by 40 per cent.
In January 2014, Cairn was slapped with a Rs. 10,247 crore assessment notice on alleged capital gains made on a 2006 internal reorganisation. However, no tax demand has been raised so far.
“Following your public comments in London, I would be grateful if you could please clarify the position on Cairn’s retrospective tax case,” he wrote.
The company denied any tax was due even if the retrospective amendments to Income Tax Act are applied as the group reorganisation had not resulted in any real income accruing to it.
“The actions of the Indian Income Tax Department in pursuing the retrospective tax claim have resulted in a $1 billion value loss to Cairn’s shareholders and we have had to sell assets and postpone investment and make a 40 per cent reduction to our workforce.”
“This is a very unfortunate conclusion to our 20 year investment in India where Cairn has been a model corporate citizen and created a legacy asset which is seen as an excellent example of what can be achieved through India and UK cooperation,” he added.
Mr. Thomson said the company wants a “constructive and open dialogue with the Government of India and would welcome the opportunity to proceed to a satisfactory resolution which is beneficial to both India and Cairn Energy Plc”.
The Income Tax Department says Cairn Energy allegedly made a capital gain of Rs. 24,503.50 crore in 2006 while transferring all its India assets to a new company, Cairn India, and getting it listed on the stock exchanges.
Cairn Energy, which had in 2011 sold majority stake in its Indian unit to mining group Vedanta for $8.67 billion, still holds a 9.8 per cent stake in Cairn India. But it has been barred by the I-T department from selling this stake.