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Current Affairs

Retro tax refund for Cairns

Date: 17 November 2021 Tags: Miscellaneous

Issue

Cairn, the British oil and gas exploration company, has announced a mega GBP 20 million (Rs 199.9 crore) share repurchase programme.

 

Background

The move of the company comes ahead of the $1.06 billion payment it is due to receive from the government of India.

 

Details

  • The payment is part of the refund of the amount that the government of India had collected in form of taxes.

  • The tax authorities had demanded payment of taxes for Cairn UK’s transfer of shares of Cairn India Holdings to Cairn India in 2006-07.

  • The government of the day had made an amendment in the IT Act to ensure that such a move of retrospective tax collection had legal basis.

 

Implications

  • The income-tax department had stopped Cairn from selling its complete shares to Vedanta resources Ltd. in 2011 due to pending dues.

  • The company had approached permanent court of arbitration citing illegal action by the Government of India. The arbitration tribunal had asked India to pay back the tax along with interest.

 

The government’s action

The union government removed all retrospective taxation on the indirect transfer of Indian assets prior to May, 2021 by amending the Taxation Laws Act.

 

Using the refund amount

  • The company will be using the amount to distribute $700 million as dividend for shareholders and also for buying back shares.

  • Share repurchasing will allow the company to buy back its own shares from the marketplace as a way to distribute earnings to shareholders.