UK-India trade talks boosted by $1bn deal to end tax row

A key stumbling block in trade talks between the UK and India has been removed as Cairn Energy closes in on a $1.1bn (£800m) deal to resolve a long-running tax row with New Delhi.

The FTSE 250 oil firm revealed it will return $700m to shareholders after the Indian government moved to resolve tax disputes with Western companies which have also entangled telecoms giant Vodafone.

Cairn boss Simon Thomson said a $1.1bn refund from New Delhi is to be signed off before the end of the month. The $400m not given back to shareholders has been earmarked for new acquisitions.

A resolution will boost to UK trade talks with India that are expected to formally kick off by the end of 2021.

Western companies have been put off investing in the country because of the huge tax disputes, and trade experts had warned that the nationalist government's treatment of UK businesses could scupper efforts to strike a deal.

Mr Thomson said the Cairn settlement will make India more alluring for investment by Western firms. 

He said: “People will be reassured by that and review therefore 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.”

The oil company has been locked in the battle with the Indian government since 2014 after its stake in Cairn India over a tax dispute. An international arbitration tribunal sided with Cairn last year, ordering India to pay compensation.

Cairn shares soared in August after the Indian government introduced a bill to change a law that allowed it to demand tax retrospectively.  

Mr Thomson said: “It's a pretty bold move by the government to introduce legislation to resolve it once and for all."

Cairn said in its half-year report that it will distribute $500m in dividends and launch a $200m share buyback programme. The company’s shares edged up following the news, climbing 0.8pc in afternoon trade to hit a six-month high.