Nokia moves towards arbitration in tax dispute

Helsinki-based Nokia has taken initial steps to seek international arbitration to amicably resolve the multi-million dollar tax dispute related to its Chennai's manufacturing unit and has sent a letter to Prime Minister Manmohan Singh.

"Nokia is keen to work with authorities in India to resolve the tax disputes. As one of our actions Nokia has sent a letter under Finland India Bilateral Investment Treaty (BIT) to the Hon'ble Prime Minister of India. The letter seeks for amicable resolution of the current tax disputes," a Nokia spokesperson said.

This move by Nokia came exactly a week after telecom service provider Vodafone Group Plc said it had started international arbitration proceedings against the Indian government in the $2 billion tax dispute since both sides have been unable to find an "amicable means of resolving the dispute".

Nokia had to leave its Chennai plant after its $7.5 billion global sale of its devices businesses to Microsoft after tax authorities in India seized the facility late 2013 saying the handset maker evaded taxes on software downloaded on handsets manufactured in that facility since 2006. The initial demand raised by the central tax authorities was Rs.2,080 crore.

Nokia India has already paid Rs.700 crore separately to rescue the Chennai unit. It also agreed to pay Rs.3,500-crore bank guarantee covering the amount it had transferred to its parent as dividend, as directed by the Delhi High Court.

But the company opposed another condition to furnish another bank guarantee from the parent covering unspecified potential future tax liabilities. It further appealed against it in the Supreme Court, which upheld the Delhi High Court order in March. The issue remained unresolved.

Further in April Madras High Court ordered the Finnish mobile phone maker to pay 10 percent of the Tamil Nadu government's tax claim of around Rs.2,400 crore. The court also asked the state government's sales tax department to look into the tax matter afresh. Hearing the Nokia appeal against the Rs.2,400 crore tax notice, the court directed the company to pay 10 percent of the tax claim in eight weeks' time.

Last month, the Tamil Nadu government sent a tax notice of around Rs.2,400 crore for three years - 2009-10, 2010-11 and 2011-12 - saying that Nokia had sold the phones made at its Sriperumbudur plant near Chennai in the domestic market.