Nokia India has moved to the Delhi High Court yesterday, to seek lifting of the stay order on the ownership transfer of its immovable assets in the country by December 12, 2013.
The company noted that this step was taken in order to seek a fair resolution with tax officials over its long-drawn tax case in the country, as it prepares to sell all its devices & services business to Microsoft, which acquired them in September 2013. Nokia shareholders had approved this deal last week.
The Delhi High Court had earlier put an interim stay on the ownership transfer of Nokia India’s immovable assets and also forbidden them from transferring these assets to any third person. This was due to IT Department’s claims that if Nokia transfers its ownership rights to others, the company will not have enough assets to meet the estimated tax liability of Rs 3,997 crore along with the existing tax demand of Rs 654 crore. In a statement, Nokia however had claimed to have sufficient assets in India to meet its tax obligations, details of which were expected to be shared with the tax authorities.
Nokia said lifting of this asset freeze will allow the company to successfully transfer all its Indian factory assets to Microsoft by Q1 2014 (when the Microsoft-Nokia agreement is expected to close), failing which the Indian factory assets will not be transferred to Microsoft and it will create an uncertainty at its Chennai facility. Citing sources close to the company, Reuters reports that Nokia will probably be operating the plant as a contract manufacturer for Microsoft.
A PTI report (via The Hindu) however says that if the transfer of its Chennai unit doesn’t happen, Nokia will be winding up its operations here over 12 months, following which the assets will carry little value.
Nokia India’s lawyers also apparently told the court that it is willing to pay a minimum deposit of Rs.2,250 crore as taxes immediately after the sale and deposit any additional surplus if the sale price is much higher, after adjusting for outstanding liabilities, excluding income tax liabilities.
Nokia Tax Case Until Now
– In January 2013, the Income Tax department had asked Nokia India for a clarification on non-payment of ‘tax deducted at source’ (TDS) on software supplies and on change in accounting model. Its officials had also conducted tax raids on Nokia India’s Sriperumbudur (Tamil Nadu) plant and offices in Chennai. The Indian authorities claims that the tax invasion involves payment for royalty on software to Nokia’s parent company in Finland.
– In February 2013, Nokia Corporation sent letters of complaint to Indian tax authorities saying that tax officials in January raided its manufacturing facility in Chennai without giving a reason suggesting that this was illegal. At that time, Nokia also claimed that its transfer pricing policies are in accordance to the Indian and Finnish laws.
– In April 2013, Nokia had filed a petition with the Delhi High Court last month and had received an interim stay order. However, the company had apparently withdrew its application later and the Delhi High Court had directed Nokia to file an appeal with the Commissioner of Income Tax (Appeals), as indicated by a NDTV report.
– In June 2013, the commissioner of Income Tax (appeals) had dismissed Nokia India’s plea against the Rs 2,100 crore tax claim by the Income Tax (IT) department. In the same month, Finland’s finance ministry had also launched a mutual agreement procedure with its Indian counterpart under the bilateral Double Taxation Avoidance agreement to resolve this issue.
– In September 2013, Delhi High Court has put an interim stay on Nokia India transferring the ownership rights for any of its immovable assets and had asked the company to inform the assessing officer before sending back money overseas.