Income tax issues and strategic blunders of the company resulted in Nokia India issue, says TN's industry secretary
The income tax department has issued a fresh tax demand to Nokia India on grounds similar to a previous claim but for different assessment years.
The latest demand is in addition to a Rs 2,080-crore tax claim in 2013 over Nokia India's failure to withhold tax on payments made to its Finnish parent as royalty for software used in its mobile phones.
India and Finland are negotiating to resolve the claim under the mutual agreement procedure (MAP), a channel for resolving disputes involving double taxation.
Sources aware of the development said the tax department had made a fresh demand of nearly Rs 1,000 crore. The demand comes at a time when the government is trying to resolve pending tax cases to project India as an investment destination.
"Fresh tax notices have been served to Nokia India for the dispute relating to other assessment years, apart from the one being contested," a finance ministry official told the Press Trust of India.
"Nokia wants these notices to be included in ongoing discussions under the MAP. Officials from India and Finland will meet soon to decide on the course of action," an official said.
Nokia's handset manufacturing division globally was sold to Microsoft in 2014, but the Chennai plant was kept out of the $7.2-billion deal because of the tax dispute. The company confirmed receiving fresh tax notices but did not disclose the demand made.
Finance Minister Arun Jaitley had assured investors in Hong Kong last month the government would expeditiously resolve tax disputes.
Experts pointed out the latest tax demand would not affect investor sentiment because it was part of an ongoing dispute, but they added the tax department could have waited for the conclusion of the MAP proceedings.
"It could have ensured the continuity of the positive atmosphere created in the recent past for foreign investors," said Rakesh Nangia, managing partner, Nangia and Co.
"If it is the same case as the earlier dispute then the government does not have an option till the case is resolved. This will not have much of an impact," said Rahul Garg, leader, direct tax, PwC.
TURN OF EVENTS
Mar 2013- I-T dept issues Rs 2,080-cr tax demand (corrected to Rs 2,649 cr) to Nokia India for failure to withhold tax on the payment made to its parent as 'royalty for the software' used in its mobile phones since 2006
May 2013- Finland invokes the mutual agreement procedure under the DTAA
Jul 2013- Firm agrees to pay Rs 700 cr towards 'stay of demand' raised by I-T dept and prevent the full amount of the claim by the DDIT becoming payable while it awaits another hearing
Sept 2013- Says it plans to sell devices & services division to Microsoft
Sept 2013- I-T dept freezes all assets
Dec 2013- Firm offers to transfer sale proceeds to an escrow account having a minimum of Rs 2,250 cr as security for tax claim; demand turned down by Delhi HC in Feb
Feb 2014- Firm gets a Rs 2,400-cr sales tax bill from Tamil Nadu, claiming handsets made were sold in the state, not exported
Mar 2014- SC dismisses Nokia India's asset freeze appeal, allowing the Delhi HC order to stay in force
April 2014- Chennai unit excluded from Microsoft deal on asset freeze
April 2014- Madras HC orders Tamil Nadu authorities to reconsider sales tax claim against firm. Asks Nokia to provide Rs 240 cr, or 10% of the disputed tax demand, as a deposit within eight weeks as a precondition for the two sides to discuss the claims
- Nov 2014- Nokia closes Chennai factory