InvestorQ : Why have shareholders of Cairn Energy of UK urged the Indian government to abide by the Tribunal order?
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Why have shareholders of Cairn Energy of UK urged the Indian government to abide by the Tribunal order?

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Angel dcosta answered.
3 months ago
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Let me give you a quick background. When Vedanta had acquired Cairn India in 2011, the government had found some discrepancies in the capital gains tax payment and raised a demand for close to $2 billion. Over the last few years, the government has withheld Rs.9,000 crore worth of dividends and tax refunds payable to Cairn UK.

Just a month ago, Europe based tribunal had ruled that the Indian government must refund the amounts withheld with interest and compensation for delay to Cairn UK as the deal signed between Vedanta and Cairn UK in 2011 had been entirely in line with the bilateral agreement between the two countries. That judgment came 3 months after Vodafone.

Now the major shareholders of Cairn Energy PLC have urged the Indian government to honour the Tribunal Order and pay up the amount of Rs.10,247 crore as per the Tribunal order. This is towards the income tax refunds and dividends belonging to Cairn Energy paid by Vedanta, which had been withheld against the retrospective tax claim made.

These investors who have urged the Indian government have major equity stakes in Cairn UK. They include top bracket global investors like MFS Investments and Blackrock. Other shareholders of Cairn PLC including Templeton, Fidelity and Aberdeen have also urged the government to abide by the order. India already has plans to contest the tribunal order.

Clearly, the issue is a lot more complex than it appears to be. While the Tribunal is justified in the sense that the Indian government’s stand may be contrary to the bilateral treaty, there is an issue of judgment. That is whether the structure designed for the deal was meant to avoid tax or not. That is a form versus substance debate which is still open.

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