Nokia vows to fight $363mn tax demand

Agencies/Mumbai

Nokia, which vowed to contest the tax order “vigorously,” is the latest multinational to be embroiled in a tax row with Indian authorities, who are chasing alleged tax delinquents to reduce a ballooning budget deficit.

Nokia declined to state the sum being sought but tax officials said it totalled Rs20bn ($363mn) spanning five financial years from 2006-07, according to the Press Trust of India news agency.

Nokia “is in full compliance with local laws as well as the bilaterally negotiated tax treaty between the governments of India and Finland, and will defend itself vigorously,” the company said in a statement.

It said it “remains willing to co-operate fully with Indian tax authorities” and looked forward to quickly resolving the dispute.

Nokia said the Delhi High Court last week granted its request for a stay on the tax claim “till further orders.”

It was not clear how long the stay on the tax demand would remain in force.

A lawyer for Nokia India assured the court that the company would not move any funds outside India, except in the normal course of business, until the date of the next court hearing, court documents showed.

The alleged tax evasion involves software royalty payments to Nokia’s parent, on which 10% tax should have been deducted and paid to Indian authorities, the PTI said.

The tax order, if enforced, would add to pressure on Nokia’s finances which are already being strained by falling sales. The company axed its annual dividend payment for the first time in its history to shore up its cash position.  

Nokia has seen a rapid dwindling of its cash reserves and ended 2012 with net cash of €4.4bn ($5.6bn), down 22% from a year earlier.

Taxmen last month raided one of Nokia’s manufacturing plants in the southern city of Chennai as part of its investigation.

Nokia, which began operations in India in the mid-1990s, had protested to India over the raid, slamming the action as “excessive” and “inconsistent with Indian standards of fair play.”

India - one of the world’s fastest-growing mobile phone markets - is Nokia’s second-largest market, with the Chennai factory producing over 20 different models.

British mobile network firm Vodafone is fighting a multi-billion dollar tax bill from Indian tax authorities over its 2007 purchase of a stake in a domestic telecommunications company. Royal Dutch Shell and Cadbury are among other companies also involved in tax disputes.

Finance Minister P Chidambaram has vowed to clamp down on tax evasion to help to lower the widening deficit.

But in the face of alarm among international investors about what they see as arbitrary tax demands, he has also said he wants “clarity on tax laws” and for taxes to be collected in a “non-adversarial” way.

Countries like India are crucial for Nokia’s attempt to hold on to global market share after giving up its spot as market leader to Samsung. It has been expanding its Asha line of low-end smartphones and India is widely seen as a key market for such cheaper models.