Officials reject Nokia's plea against Rs 2k cr tax demand

The Finnish mobile phone maker is now planning to move to the Delhi High Court

Tax authorities have turned down Nokia’s appeal challenging the Rs 2,080-crore income tax notice, which was served to the company for alleged evasion of taxes in transactions with its parent. The Finnish mobile phone maker is now planning to move the Delhi High Court.

The rejection of Nokia’s plea by Commissioner of Income-tax (Appeals) deals a blow to the company at a time when it is already facing a stiff competition in the market from players like Samsung and Micromax. India is an important market for Nokia to retain its global market share.

“Nokia is disappointed by the decision and will now examine all options open to it. These include taking the case back to the Delhi High Court,” the company said in a statement today.

At the same time, the Finnish government has launched the Mutual Agreement Procedure (MAP) with Indian authorities under their Double Taxation Avoidance Agreement to reach a common understanding on the matter. The two countries can amicably decide how much of the group’s profits should be attributed to each country for the purpose of determining tax liability.

In March, the Income Tax department sent a notice to Nokia demanding about Rs 2,080 crore in taxes for wrongfully claiming exemption on royalty payments made against supply of software by the company’s parent firm for five years starting from 2006-07.

Nokia, on the other hand, reiterated that it was in full compliance with Indian laws as well as the bilaterally negotiated tax treaty between the governments of India and Finland. The company said it would act quickly and decisively to protect its interests.

“Nokia will defend itself vigorously in this case and against any other Indian tax allegations, using all channels available,” the company added.

In 2012, the Income Tax department got information that the company was downloading software from its parent company in Finland to manufacture mobile devices. As per the Income Tax Act, royalty paid on downloaded software attracts TDS at the rate of 10%. However, tax authorities allege, these transactions were shown in the audit report under procurement of 'raw materials' to evade taxes.

In January, the department raided Nokia’s manufacturing facility at Sriperumbudur in Chennai—one of the company’s largest plants and country’s first telecom SEZ, after it suspected the mobile handset maker was evading taxes. Executives from Nokia and its auditing firm were later summoned by the tax department to seek clarifications on the financial records seized during the raid.