Cairn Energy's stock drops as Cairn India gets $3.2bn tax claim

Shares in oil and gas major Cairn Energy traded lower on 13 March on news that the Indian tax office had asked Cairn India to pay about 204bn rupees (£2.2bn, €3.1bn $3.24bn) in relation to the 2007 listing of the company.

The British firm's stock was down 5.46% at 1.36pm in London on the news, which came three days after it said it had filed a formal dispute against a separate $1.6bn demand, from Indian tax authorities, linked to the same transaction.

Edinburgh-based Cairn Energy owns about 10% of Cairn India, following the sale of its majority stake in the Indian firm to London-traded Vedanta Resources in 2011.

The stake is worth some $680m. India has prevented Cairn Energy from offloading its stake until the tax issue is resolved.

Meanwhile, Vedanta's stock was trading 6.05% lower in London on Friday.

Government helpless?

The high-value tax demands on Cairn Energy and Cairn India come despite the Indian government's moves to reduce tax-related litigation and transition towards a tax-friendly regime to attract the much-needed foreign investment.

India's finance minister Arun Jaitley has explained that New Delhi is powerless to stop the Cairn Energy case as it was started by the preceding regime, Reuters reported.

P Phani Sekhar, a Mumbai-based fund manager at Karvy Stock Broking told Bloomberg: "You have policy intentions from the government on the one hand, but officials will strictly have to go by the rule book."

Jaitley, in February, said that retrospective demands adversely impact the predictability of the tax regime and that they should be avoided.

In January, the Indian government decided not to pursue a similar tax claim against Vodafone Group after a court ruled in favour of the telecommunication giant.