Vedanta deal: Cairn Energy to pay $1.1 bn tax

While UK's Vodafone Group fights its tax liability in courts, British firm Cairn Energy Plc on Wednesday said it will pay all taxes due, both in India and the United Kingdom, on the $8.48 billion sale of a majority stake in its Indian arm to Vedanta Resources.

Cairn Energy is selling between a 40 and 51 per cent stake in Cairn India - the operator of the nation's largest onland oilfield - to London-listed Vedanta for $6.65 billion to $8.48 billion.

"Tax will be paid in both India and UK," a Cairn Energy spokesperson said. "Averaged across both countries on the gross proceeds, it will be in the low teens. What is paid will be determined eventually by the final proceeds."

The spokesperson did not elaborate, but analysts said the 'low teens' being referred to in the statement may be the 13- 14 per cent tax liability on gross proceeds of the sale.

If Cairn Energy was to eventually sell only 40 per cent out of its 62.38 per cent stake in Cairn India for $6.65 billion, the combined tax liability in India and UK would be around $868 million.

But if it was to sell 51 per cent for $8.48 billion, the tax liability would be $1.1 billion. Vedanta is to acquire a 40 per cent stake from Cairn Energy and make an open offer for an additional 20 per cent to minority shareholders of Cairn India.

In case the open offer is not fully subscribed, Cairn Energy will sell the additional shares, but with cap of 51 per cent, to make up for shortfall. Vodafone Group Plc is likely to appeal in the Supreme Court against the Bombay High Court ruling that dismissed the company's challenge against a tax claim exceeding $2 billion.

The court on Wednesday ruled that the Income Tax department has the jurisdiction to seek taxes from Vodafone on its 2007 purchase of Hutchison Whampoa Ltd's wireless mobile operations in India.

The I-T department had argued that the world's biggest mobile phone company failed to deduct tax at source on its acquisition of Hutchison's stake in Hutchison Essar Ltd.