Explained: How buyback using retro tax refund helps Cairn

Cairn sold a majority of its India business to Vedanta resources Ltd. in 2011 but income-tax authorities barred it from selling about 10 per cent, citing pending taxation issues.

The government amended the Income Tax Act to allow for retrospective taxation of the transaction after the Supreme Court verdict in a similar case which held that Vodafone could not be taxed for a 2007 transaction that involved its purchase of a 67 per cent stake in Hutchison Whampoa for $11 billion.

After prolonged litigation Cairn won an award of $1.2 billion form the permanent court of arbitration at the Hague and sought to have it enforced through the seizure of government assets in other countries including those of Air India.

Post the verdict the government had in August amended the Taxation Laws Act to remove end all retrospective taxation on the indirect transfer of Indian assets prior to May, 2021. The government also moved to start talks to settle claims of companies that had been taxed retrospectively under the respective taxation amendment including Cairn and Vodafone.

How is Cairn using the refund?

Has previously announced that it intends to use the refund from the Indian government to distribute $700 million to shareholders through dividend payouts and share buybacks.

In a share repurchase a company buys back its own shares from the marketplace as a way to distribute earnings to shareholders.

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