The ending of a long-running tax row could now pave the way for better UK-Indian trade deals, according to analysts.
The so-called Cairn Energy Settlement sees FTSE 250 firm Cairn Energy return $700m to shareholders after the Indian government moved to resolve tax disputes (which also impact other Western companies).
Speaking in The Telegraph, Cairn boss Simon Thomson said the Cairn settlement will make India more alluring for investment by Western firms.
Thomson added: “People will be reassured by that and [will] review the attractiveness of India as an investment destination.
“It’s all about certainty. If you can be certain that you can freely trade your assets, that’s important.”
Cairn had been locked in a dispute with the Indian government after it introduced a bill to change a law that allowed it to demand tax retrospectively.
India is currently exploring settlement of 17 tax disputes, including with Vodafone Group over retrospective tax claims.
Companies involved in the 17 disputes will now have to file an undertaking to the designated tax official withdrawing or agreeing to withdraw all claims, petitions, appeals and arbitration award enforcement efforts to settle the cases.
In cases where no claim or proceedings are initiated by the disputing party, an undertaking has to be given not to do so in the future and waive all rights relating to the retrospective tax dispute.
Cairn Energy said in its statement that in accepting the terms of the new legislation in India, Cairn would be required to withdraw its international arbitration award claim, interest and costs and to end all legal enforcement actions to be eligible for the refund.
The $400m not given back to shareholders by Cairn has been earmarked for new acquisitions and could now see the resumption of trade talks by the end of 2021.
Speaking to livemint.com Thomson added: “Progress in resolving our Indian tax issue and active portfolio management leave Cairn well-positioned to deliver growth from a sustainable business, focused on generating further value and returns for shareholders.”