MINING group Vedanta Resources revealed yesterday that its Cairn India subsidiary has received a £2.2 billion tax demand from the Indian authorities.
The move came just days after the Indian income tax department served a £1bn bill on the division’s former parent, Cairn Energy, sending shares in the oil and gas explorer tumbling.
The demands relate to the flotation in 2007 of Cairn India, in which Edinburgh-based Cairn retains a stake of about 10 per cent. Both companies are disputing the claims, arguing they have always complied with tax legislation in the country, which is trying to boost foreign investment under Narendra Modi’s governing BJP party.
Cairn India said the authorities alleged it had failed to deduct withholding tax on capital gains made by its erstwhile parent in the financial year ending March 2007 as part of a restructuring ahead of its flotation.
The demand, for 205 billion rupees (£2.2bn), comprises £1.1bn in tax and a similar amount of interest.
“Cairn India does not agree with this alleged demand and will pursue all possible options to protect its interest,” the company said in a statement to the country’s stock exchanges. It added: “Cairn India has always been fully compliant with all Indian income tax laws.”
On Tuesday, Cairn Energy chief executive Simon Thomson said the explorer “has been fully compliant with all relevant legislation and paid all applicable taxes in India and we are confident of our position under the UK-India investment treaty”.
He added: “Against a backdrop of regular engagement with the government of India since January 2014, it is very disappointing to have received a draft assessment order at this time. Since the election of the BJP, senior government ministers have consistently commented on the negative impact the issue of retrospective taxation has had on international reputation and investor sentiment towards India.”
A raft of other multinationals, including IBM, Microsoft, Shell and Vodafone, have incurred the wrath of India’s tax collectors in recent years, but Indian finance minister Arun Jaitley arrived in the UK yesterday on the invitation of Prime Minister David Cameron to discuss the development of closer ties between the two nations.
Media reports in India said that Jaitley had told UK foreign secretary Philip Hammond – on his first official visit to the country – that the Cairn tax demand had been initiated under the previous government.
London-listed miner Vedanta Resources paid almost $9bn (£6bn) three years ago for a controlling stake in Cairn India. Amid the ongoing tax dispute, Cairn Energy has been unable to sell its remaining 10 per cent stake in the business, valued at $703m as of 31 December – down from $1.1bn a year earlier.
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