Cairn retro tax saga: A bizarre tale of twists & turns

New Delhi: The levy of retrospective tax on the UK's Cairn Energy Plc is a tale of bizarre twists and turns that saw its attached shares being sold in May 2018 amid the passing of the baton from a full-time finance minister to interim one and the talks at the highest level to resolve the dispute, to claims that levy of back taxes was a result of an investigation into Panama Papers leak.

The government late last month refunded about Rs 7,900 crore it had collected from selling residual shares of the British firm in its erstwhile India unit, seizing dividend and withholding tax refunds, to settle an eight-year-old dispute that had tarred the country's reputation as an investment destination. But, this did not come about easily. For seven years, the establishment vehemently justified in courts and outside seeking of Rs 10,247 crore in back taxes plus interest and penalty from a firm that gave India its biggest onshore oil discovery.

Officials even refused to accept a unanimous decision of an international arbitration tribunal, where one judge was appointed by the government, to overturn tax being sought on an internal business reorganisation that Cairn carried out in 2006-07 of its India business prior to listing. Hawkish officials balked at offers Cairn, which is now known as Capricorn Energy Plc, made to settle the dispute after winning the arbitration award. These offers included reinvesting part of the refund due to it back in the country in a project or sector identified by the government.

A change came about when Finance Minister Nirmala Sitharaman, who had previously delegated the negotiations to her officials, met Cairn executives for the first time at her residence on April 16, 2021. She was clear that the government wanted to resolve the issue once and for all, three officials with direct knowledge of the affairs said. Cairn executives, who were to return to London that weekend, were asked to stay back and come for a follow-up meeting with the newly appointed Revenue Secretary Tarun Bajaj, a senior bureaucrat who had previously worked in the Prime Minister's Office (PMO).

Just like his boss, Bajaj also wanted to settle the issue but the ensuing severe second wave of Covid meant no substantive follow-up could happen. In the meantime, Cairn's marquee shareholders, that included BlackRock, MFS, Franklin Templeton and Fidelity, became impatient and pushed the company board to initiate enforcement proceedings — something that saw the company registering the arbitration award in nations from Singapore to the US and Canada and then moving courts in New York and Washington to seize Air India assets. In July 2021, it succeeded in getting a French court order to freeze the Indian government's residential flats in an upmarket locality in Paris.