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Tax uncertainty may hurt investments in India, warns Cairn CEO
November, 04th 2016

India’s high-profile disputes on retrospective tax on foreign companies are expected to be high on the agenda of British Prime Minister Theresa May’s visit to India as Cairn Plc has strongly taken up the issue with both the governments, Chief Executive Simon Thomson said ahead of the premier’s trip to New Delhi.

“I would hope that this visit sees a resolution of this case … I have made the case strongly to both the governments,” Thomson told ETin an interview. Cairn faces a tax demand of Rs 29,000 crore, which it has contested saying it cannot be taxed on the decade-old government-approved transaction.

British telecom major Vodafone Group Plc has a Rs 20,000-crore tax dispute over its $11.2-billion acquisition of Hutchison’s India business in 2007.

Both the Cairn and Vodafone cases are in international arbitration.

Thomson said international investors who had billions, even trillions, of dollars to invest would find it “dangerous” to invest in India because of the uncertainty that the tax demand had created. He said Cairn would certainly win the arbitration but there was still a strong case for India to settle the matter amicably.

“Looking at our case, investors cannot understand why the government has not resolved the arbitration.

When you look at what happened in our case, it is dangerous from the point of view of investment. If this issue was removed tomorrow, it would present a different perspective for further investment in India,” the chief executive said.


The British explorer has initiated arbitration against the tax demand and the decision of the authorities to freeze 10% of the equity it still holds in the Indian company after selling the majority stake to Vedanta.

“We will win our case in international arbitration, I’m completely confident of that. But it takes time, and if we do, then the Indian government would not only have to release the shares that are frozen, but actually also pay a cheque of billions of dollars,” he said.

“It would be better for the Indian government to persuade the company not to pursue arbitration. As time goes by, if I am correct, then there’s a large bill that they are going to have to pay. Would it not be better to settle it now, in order to avoid bills?” After the tax notice and the freezing of its shares, Cairn’s shares plunged and the company had to resort to drastic job cuts.

The company has repeatedly taken up the matter with the government, which is also not comfortable with retrospective taxation imposed by the previous regime.

While Cairn Plc is desperately seeking a quick resolution of the case, the Indian government is showing no urgency, Thomson complained.

“We are not seeing a sense of urgency. We have great dialogue with the Indian government, but a sense of urgency is required in repealing the legislation,” he said.

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