Court stays Rs.2,000 crore tax notice to Nokia India

A file photo of Nokia headquarters in Finland. Tax officials said in an interim 
report that Nokia should pay `13,000 crore for tax and transfer-pricing violations, 
The Economic Times reported on 13 January. Photo: Reuters
Live Mint :Shauvik Ghosh : Thu, Mar 28 2013. 03 03 PM IST

Finnish firm says it has worked in full compliance with local laws, will defend itself vigorously

Mobile phone maker Nokia Oyj’s Indian unit said on Thursday that the Delhi high court had ordered a temporary stay on a tax claim by Indian revenue officials.

The income-tax (I-T) department had asked Nokia India to payRs.2,000 crore towards tax that should have been deduced at source on money the local unit paid as royalty fees to its parent, officials aware of the matter said on condition of anonymity.

“Nokia confirms it has received an order from Indian tax officials. Nokia reiterates its position is that it is in full compliance with local laws as well as the bilaterally negotiated tax treaty between the governments of India and Finland, and will defend itself vigorously,” the company said in a statement. “In this regard, Nokia filed a writ before the Delhi high court last week, and on Friday, 22 March, the court has issued notice to the I-T department to file its counter-affidavit and has granted interim stay of the entire tax demand raised against Nokia till further orders.”

Tax officials said in an interim report that Nokia should pay Rs.13,000 crore for tax and transfer-pricing violations, The Economic Times reported on 13 January. Transfer pricing is the value at which companies trade products, services or assets between units in different countries, sometimes to avoid taxes.

The writers of the report alleged that Nokia’s Indian subsidiary had been downloading software from its parent firm to manufacture mobile handsets at its Sriperumbudur factory in Tamil Nadu. The Indian subsidiary paid royalty on the software, which attracts a 10% tax to be deducted at source.

The tax department in January raided the factory near Chennai and offices of Nokia’s Indian subsidiary in Gurgaon. The Sriperumbudur factory is one of the largest production facilities for the device maker, out of eight in the world. It has manufactured more than 500 million mobile phones in the past five years and employs over 8,000 people.

The tax department questioned officials, also in January, of audit and accounting firm PricewaterhouseCoopers, which scrutinizes the accounts of Nokia India.

“Since establishing the Chennai factory in 2006, indeed since starting business operations in India in the mid-1990s, Nokia has been scrutinized by the authorities regularly, and its policies have been validated by the Indian and Finnish tax authorities in the normal course of tax proceedings,” Nokia said in its Thursday statement. “Nokia remains willing to cooperate fully with Indian tax authorities in accordance with all applicable laws. Nokia has enjoyed a long and fruitful relationship with India, and looks forward to a prompt and just resolution to this matter.”