By Alex MacDonald
LONDON--Cairn India Ltd. (532792.BY) plans to defend itself
against an order from the Indian Income Tax Department to pay
204.95 billion rupees ($3.3 billion) in taxes and interest, noting
that the charge is "quite irrational on many accounts," its chief
financial officer said Friday.
Indian tax authorities charged Cairn India, a India-focused oil
and gas explorer, last week for failing to pay taxes on gains made
by its former parent Cairn Energy PLC (CNE.LN) in a share transfer
transaction about eight years ago. Cairn Energy transferred shares
internally as part of a group restructuring that prepared the
ground work for Cairn India's initial public offering in 2007.
Cairn India CFO Sudhir Mathur said there was no taxable event in
the share transfer since the economic interest never changed hands.
"The economic owner remained the same prior to and after" the
event, he said. Mr. Mathur was speaking at an investor day
presentation held by Cairn India's parent company, Vedanta
Resources PLC (VED.LN), which owns a majority stake in Cairn
India.
International executives have complained for years that India's
tax authorities were unpredictable and heavy-handed in their
enforcement of tax law, particularly on the foreign companies that
have invested most in the country. India's new government is
seeking to change that albeit in a piecemeal way.
Last month, the government chose not to appeal a Supreme Court
ruling that exonerated the U.K.-based telecommunications company
Vodafone Group PLC (VOD) from having to pay about half a billion
dollars in back taxes related to a series of internal share
transfers. India's finance ministry also pledged this week a
moratorium on initiating new cases under the country's
retroactive-tax law although it said it would still pursue existing
tax cases, including those against Vodafone and Cairn India.
Mr. Mathur said the company is working with its lawyers to
provide a response to the tax authorities by the April 10 deadline.
He said that there are several possible legal options that Cairn
India could pursue.
Vedanta Resources' Chief Financial Officer DD Jalan also said at
the same investor day that "there is no rationale for this tax to
be levied on Cairn India." He added that even if there was cause
for levying such a tax, it would have been the responsibility of
Cairn Energy, the parent company at the time.
Indian tax authorities have also charged Cairn Energy with a
$1.6 billion charge for the same transaction. The company, which
still holds a 10% stake in Cairn India, said it strongly contests
the claim and is in talks with the government to resolve the
dispute.
Vedanta has no plans to book a provision for the tax charge, Mr.
Jalan said, although he noted that the Cairn India may record the
tax as a contingent liability until the matter has been resolved.
Vedanta completed the acquisition of a 60% stake in Cairn India
from Cairn Energy in 2011.
--Saurabh Chaturvedi and Eric Bellman in New Delhi contributed
to this story.
Write to Alex MacDonald at alex.macdonald@wsj.com
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