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Nokia challenges Tamil Nadu Govt’s tax claims

NokiaNokia has filed a writ to the Madras High Court protesting the Rs 2,400 crore tax claim from the Tamil Nadu government.

The government had alleged that Nokia was masking devices sales within India as exports and not paying sales tax on these devices.

The company said in a statement that it considers this claim to be completely without merit and counter to domestic tax laws. It added that these claims could be rebuffed by checking documentation provided to various governmental departments including the customs department. “In India, exports are by law exempt from tax, and Nokia has proved consistently that devices produced at Chennai are exported abroad. Indeed, the company has been regularly assessed and audited by the tax authorities since 2006 without incident, and it has also won numerous export awards from governmental organisations,” the statement read.

Nokia is also fighting other cases related to its purchase by Microsoft. India’s Supreme Court, in a broader tax dispute regarding the Chennai plant, had last week ordered the Finnish company to give a Rs 3,500 crore guarantee and waive some of its rights to legal defence before it transfers the factory to Microsoft. A Nokia spokesman had told Reuters that it was still considering its options over the Supreme Court ruling regarding the plant.

Beating the investors away

On one hand, the Indian government is trying to encourage electronics companies to manufacture gadgets in India. It is offering Modified Special Incentive Package (M-SIPS) as part of the National Electronics Policy including 25% subsidy to companies in non-SEZ and 20 % within SEZ, reimbursement of CVD/excise for capital equipment for non-SEZ units and reimbursement of central taxes and duties for 10 years in select high- tech units like fabs.

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Then, you have all these court cases which discourage companies from setting up base here. It is this mentality that made Sam Pitroda, Prime Minister’s advisor on innovation, say that the UPA government’s policies were “messed up”.

It’s not clear how long it’ll take for the company to settle the case. Nokia needs a quick decision, as it is contractually obliged to transfer all its assets to Microsft by April this year. That said, it had said in a statement last month that the ongoing tax proceedings in India will not have any bearing on the deal between Nokia and Microsoft.

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 and had received an interim stay order. However, the company 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 an NDTV report.

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– 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.

– In November 2013, Nokia moved to the Delhi High Court seeking a lift on the stay order. It had also told the court that it was 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.

– In December 2013, Income Tax (IT) Department had told the Delhi High Court that Nokia’s Rs 2,250 crore offer was not acceptable.

– In December 2013, Delhi High Court lifted the stay order on the ownership transfer of Nokia India’s immovable assets in the country. It also directed Nokia India to deposit minimum Rs 2,250 crore in a escrow account. Note that this amount could be higher if the payment from Microsoft increases. Nokia was also told to pay another Rs 3,500 crore if it loses the case along with a letter which guarantees compliance with the order when the dispute has been resolved. This is in addition to the Rs 700 crore it has to pay in installments as per the June 2013 order.

– In March 2014, the Supreme Court, ordered Nokia to give a Rs 3,500 crore guarantee and waive some of its rights to legal defence before it transfers the factory to Microsoft.

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