MAC: Mines and Communities

London Calling: Vedanta's fit for a Panama hat?

Published by MAC on 2016-04-26
Source: Nostromo Research

Journalists all over the place are zealously digging up evidence of tax avoidance by individuals and companies, based on what's emerging from the so-called Panama Papers.

Many culprits haven't yet been named and it's possible some of the worst may never be. What a pity if - in the lulls that customarily follow such media storms - they were ignored?

Among these must surely be the Indian mining capitalist Anil Agarwal, chairman and majority owner of London-listed Vedanta Resources plc.

Not that he appears to have dipped his feet in the murky waters of South and Central America. But he's certainly swum with sharks in the Indian Ocean, specifically those that lurk around the tax haven of Mauritius.

By any global benchmark, Agarwal and family rank among the worst of tax offenders. It's something a few diligent Indian researchers have acknowledged for years.

The latest multi-million dollar spat revolves around Vedanta's attempts to offload its onerous carried debt, some time before it acquired the oil firm Cairn India,which was acquired from Cairn Energy of Scotland in 2011.

See: How did Vedanta grab India's richest oilfields?

Gormless at the Cairn? *

Now, the Indian government is demanding a huge amount of unpaid withholding tax from Vedanta which, it  claims, was chalked up when the oily deal was done.

And Agarwal is refusing to pay  - arguing that he's not at all responsible for any of Cairn Energy's past liabilities.

This seems akin to the argument, recently used by British prime minister, David Cameron, that he's not to blame for his own father's acumulation of family wealth, despite is accruing it tax-free income from a fund registered in Panama.

We doubt that many people - not least in India - will be taken aback by Agarwal's similar self-serving manoeuvre.

For such behaviour on his part goes back over more than two decades.

Drawing on invaluable research by Paranjoy Guha Thakurta (now managing editor of India's distinguised Economic and Political Weekly), in 2009 we revealed that the Agarwal clan has been trying to hoodwink the Indian government for more than twenty years:

“[I]n 2002, the year before the FSA allowed Sterlite to reconstitute itself as Vedanta Resources plc, India's Enforcement Directorate (ED) - the regulatory body for foreign exchange transactions - served a 'show cause' notice on three of the Agarwal family”

The notice demanded that the Sterlite directors “answer allegations of using their holding companies to avoid paying domestic taxes on foreign exchange transactions. It was a polite way of saying there was prima facie evidence, dating back to 1993, that the Agarwals had been guilty of money laundering on a vast scale”. 

To this day, the Agarwals haven't been held to account.

See: Sixteen years of fraud?

And the family still hasn't made amends

Will all "come out" in the wash?

The amount owed by the Indian multi-billionaire, according to  India's Enforcement Directorate is some 20,000 crore rupees.

That's almost exactly that now being claimed in respect of the Cairn India takeover.

True to form, when commenting on this latest super-spat with the Indian government  the South Asia oligarch hopes that "something will come out".

To his own advantage. of course.

This is as near as dammit to an expression immortalised by one of Charles Dickens characters in the 19th century novel, David Copperfield **.

But Mr Micawber was drawn by Dickens as a distinctly comic fictional player. Apart from their physical "robustness", that's all that he and Agarwalhave in common.

And there's little to make us laugh at the antics of Mr Agarwaral.


* Cairn Gorm is one of the highest mountains in Britain

** Mr Micawber preferred using the term "something will come up"

[London Calling is written by Nostromo Research. Opinions expressed in this column do not necessairly reflect those of an other author, including he editors of this website. Reproducton is welcomed under a Creative Commons Licence]

Cairn India has indemnity from Cairn Energy on tax demand: Anil Agarwal


10 April 2016

London: Cairn India Ltd has full indemnity from its former promoter Cairn Energy Plc of the UK against levy of any tax for past deeds, including the two-year-old Rs.20,495 crore retrospective tax demand, its new owner Anil Agarwal has said.

Cairn India was in April 2014 slapped with a tax demand of Rs.20,495 crore [around £200,000 million] for failing to deduct withholding tax on alleged capital gains made by its erstwhile parent company, Cairn Energy in 2006-07 when it reorganised India business.

Agarwal’s Vedanta Resources Plc acquired Cairn India in 2011 and in the sale purchase agreement Cairn Energy has indemnified it from any tax liability for past years, he told PTI in an interview.

“Our tax demand is purely on the basis of tax demand on the principal company, that is Cairn Energy. We have absolutely nothing to do with retrospective tax. It is between them (Cairn Energy and income tax department),” Agarwal said.

The tax notice on Cairn India came three months after the income tax department using retrospective tax legislation slapped Rs.10,247 crore tax notice on Cairn Energy in January 2014. In February this year, the department issued a final assessment order seeking over Rs.29,000 crore in tax from Cairn Energy including Rs.18,800 crore in interest.

“I have full indemnity from that company (Cairn Energy) on the tax demand,” said Agarwal, chairman of Vedanta Resources.

Explaining the rationale for tax demand notice on Cairn India when the capital gains were allegedly made by its erstwhile promoter, Cairn Energy, Agarwal said, “The government probably as a precaution got to us. They wanted to be sure that if something goes wrong there, they have something here. It is not a liability at all for Cairn India nor are we party to it. It is purely of Cairn Energy.”

Cairn India had moved the Delhi high court against the tax demand in April last year and the next date of hearing is 18 April. The tax demand was in respect of Cairn UK Holdings Ltd, a subsidiary of Cairn Energy, transferring shares of Cairn India Holdings Ltd to Cairn India as part of an internal group reorganization in 2006-07, resulting in Rs.24,503.50 crore capital gain, preceding an initial public offering by Cairn India.

Cairn India had also slapped an arbitration notice under the UK-India Investment Treaty but arbitrators or judges to decide on the tax case haven’t been appointed yet. “Just notice has been exchanged. Notice has gone. We are still looking at what happens to Cairn Energy,” Agarwal said, alluding to separate arbitration initiated by the British firm against the tax demand.

Asked if Cairn Energy should accept the government’s offer to settle the case by paying the principal tax amount with interest and penalties being waived off, Agarwal said, “It is for them to decide.”

“The government is keen to settle the dispute. I hope something comes out. As far as we are concerned, our company is not the one which has defaulted,” he added.



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