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India prepared to deal with Cairn’s tax victory enforcement

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New Delhi: The Indian government is in the process of filing an appeal against a $1.2 billion arbitration award that British oil major Cairn Energy Plc. secured in a tax dispute and is determined to strongly defend any move by the company to enforce the award, said a person familiar with discussions in the government.

“If enforcement proceedings are initiated, India is confident to address them and will strongly defend its interests,” the person said on the condition of not being named. The government, however, is open to settling the dispute under the Vivad se Vishwas direct tax dispute resolution scheme.

Emailed requests to Cairn Energy and the finance ministry seeking comments on the development remained unanswered at the time of publishing.

“India is open for a constructive settlement of tax disputes within the existing legal framework. Cairn is talking to the government of India and is yet to respond based on the discussions,” the person quoted above said.

Cairn Energy Plc’s chief executive officer Simon Thomson had last month met senior Indian officials to discuss the dispute even as India prepared for appealing against the award. Thomson had told reporters after the meeting that the discussions were constructive.

However, media reports said Cairn Energy was pursuing other options too. Courts in five countries including the US and the UK have given recognition to the arbitration award – a step that now opens the possibility of the British firm seizing Indian assets in those countries if New Delhi does not pay, news agency PTI reported on Monday citing unnamed sources.

The tax demand raised on Cairn was of around 104 billion in taxes plus equal amount in penalty and interest accrued. According to Cairn, the Indian government has seized residual shares in Cairn India Ltd. (acquired by Vedanta Resources) as well as a tax refund due to the British company, together amounting to approximately 105.7 billion or $1.4 billion. As a result of international arbitration, the company secured an award to the tune of $1.2 billion plus interest and cost.

The government alleges that Cairn did not pay taxes anywhere in the world on the gains that it made in India from its internal re-organisation in 2006-07. “In this case, it was well within India’s sovereign powers to redress the situation of double non-taxation and tax abuse,” the person said. Double-non taxation refers to structuring deals in such a way that tax is not paid in any of the jurisdictions.

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