Nokia India Tax Dispute Case

In March 2013,Nokia was served with a tax demand of about 20.8 billion rupees for five fiscal years starting from 2006-07, according to a March 22 notice on the Delhi High Court website.

Including the anticipated liability, or the tax bill for the years that have not been assessed by the authorities, the total liability could rise to roughly 75 billion rupees, said Mohan Parasaran, who is representing the tax department.

If Nokia loses the legal battle, it may have to pay as much as 210 billion rupees, which includes penalties and interest

The Chennai plant is one of Nokia's biggest phone-making factories and was seized by authorities because of tax claims. Nokia appealed against the seizure and has been trying to end the dispute ahead of the sale of its mobile phone business to Microsoft in a 5.4 billion euro deal

Nokia has said it wanted the factory seizure to be lifted by December 12 for the planned transfer of the business to Microsoft.

Nokia has said it does not expect the tax dispute to affect its deal with Microsoft, which is likely to close in the first quarter of 2014, but a lengthy asset freeze could complicate matters by preventing the transfer of the Chennai plant.

Nokia offered to pay a 270 million euro deposit to Indian authorities, on top of an earlier agreement to pay around 85 million euros, to unfreeze assets including the Chennai plant.

The Finnish Govt has requested India to consider the case under the alternate dispute resolution mechanism called the Mutual Agreement Procedure (MAP) in the tax treaty, which provides for settling the case even as a parallel judicial process continues in India.

The Case
The Income-Tax Department had issued a Rs 2,000-crore tax demand on Nokia on March 21,2013 for not withholding tax on the payment made to its parent as royalty for the software used in its mobile phones since 2006

The demand includes both tax and penalty, but has for the moment been stayed by the Delhi High Court.

The tax authorities have also suggested that an additional notice could be issued to the phone maker for violation of transfer pricing norms, though no specific penalty has been quantified yet

 Delhi High Court Allows Nokia To Sell Assets Thursday Dec 12,2013

The Delhi HC on Thursday Dec 12,2013 allowed Nokia India’s plea for modification of its interim order, and permitted the company to sell its assets here to Microsoft International.

Modifying the interim order of September 26, a Division Bench of Justice Sanjiv Khanna and Justice Sanjeev Sachdeva said: “…we are inclined to modify our interim order dated September 26, 2013, in particular clause (1) and (3) thereof. We permit and allow sale of assets by Nokia India to Microsoft/Microsoft International subject to fulfilment of (certain conditions)…’’

In its interim order, the Court had asked Nokia India “not to surrender the lease hold rights or transfer the ownership rights in respect of any of the immovable asset or transfer the fixed asset to any third person.’’

It had further asked it “not to transfer, sell or alienate movable plant or machinery located in the immovable properties…’’

While modifying the interim order, the Court said that “Nokia India/Nokia Finland will deposit at least Rs.2,250 crore in an escrow account, details of which will be furnished to the respondents (Income Tax Department) within one month of the agreement with Microsoft/Microsoft International

Note
Nokia's case is one of several tax disputes involving foreign companies in India and the other cos. are -