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Cairn created maze of subsidiaries
UK’s Cairn Energy, which became the first company to face coercive recovery in retrospective tax action, had created a maze of subsidiaries in a span of just six months to transfer Indian assets, an event that led to a demand of Rs 10,247 crore as dues.
UK firm made capital gains, hence owes tax of Rs 10,247 cr: I-T Tribunal
New Delhi: UK’s Cairn Energy, which became the first company to face coercive recovery in retrospective tax action, had created a maze of subsidiaries in a span of just six months to transfer Indian assets, an event that led to a demand of Rs 10,247 crore as dues.
According to documents accessed by PTI, Scotland-based Cairn Energy till 2006 held Indian assets, including the prolific Rajasthan oil fields, through nine Indian subsidiaries. What followed was creation of layers of subsidiary firms and transfer of Indian assets.
The Income Tax (I-T) department said the company made capital gains out of the restructuring, hence the tax demand. When contacted, Cairn Energy spokesperson justified the structure, saying the company chose India listing over the option of getting the Indian company listed on UK bourses. The structure it built had been presented to Sebi, the erstwhile Foreign Investment Promotion Board (FIPB) and the Reserve Bank of India (RBI) in 2006 in a ‘transparent’ manner.
On June 26, 2006, Cairn first created Cairn UK Holding Ltd (CUHL) and transferred the Indian assets to it. In return, it got 221.44 million shares of CUHL on June 30, 2006. It also got another 29.78 million shares for sale of 29.78 million pound debt on September 1, 2006. On August 3, 2006, Cairn India Holding Ltd (CIHL) was incorporated in Jersey, Channel Islands -- a tax haven -- as a wholly-owned subsidiary of CUHL.
The Indian assets were transferred to CIHL which issued 221.44 million shares to CUHL, UK, on August 7, 2006. CUHL also sold debt of 29.78 million pound to CIHL, for which the Jersey firm issued another 29.78 million shares. So, CUHL in all acquired 251.22 million shares of CIHL at one UK pound sterling apiece. Thereafter, CUHL, UK, on October 12, 2006, sold 41.49 million shares of CIHL to newly-incorporated Cairn India Ltd, which transfered to the British firm Rs 5,037 crore for the same.
Three more such share transfers happened between November and December 2006. In all, the four transactions put together, 251.22 million shares of CIHL were sold to Cairn India for Rs 26,681 crore. The income tax department, documents showed, calculated the cost of acquisition as 251.22 million pound (Rs 2,178 crore) considering the price at which the debt was transfered.
So, the capital gains CUHL made were calculated at Rs 24,503 crore (Rs 26,681 crore gained minus acquisition price of Rs 2,178 crore), the documents showed.
