Sunday, July 21, 2013

Nokia tax issue may be headed for a diplomatic solution

The Rs. 2,000-crore Nokia tax issue may be headed for a diplomatic solution as the government is reading for an out-of-court settlement. It is veering around the idea of imposing a penalty on Nokia rather than paying up the pending taxes which it owes here supposedly.

The Finnish government
 has taken up the matter at a diplomatic level with the Indian embassy there indicating that the dispute could risk Finnish investments into India.
The ministry of external affairs is spearheading the matter through its mission there by working out a mechanism under the Bilateral Investment Promotion and Protection Agreement (BIPA) that India has with Finland along with the ministry of finance. BIPA with Finland came to force on April 2003.

“We have told them (finance ministry) to look into the issue. We have given Nokia the option to either fight it out in the court or pay up penalty for not paying the required taxes. If the matter can be settled out of court then why not try it out?” a top MEA official told Business Standard.

The official also added that MEA has asked finance ministry to fasten the process as “these issues do deter investments.” India and Finland also has a Double Taxation Avoidance Agreement (DTAA) under which the finance ministry is also trying to work out a solution through the Mutual Procedure Agreement provision under the extant treaty.

When contacted, Poonam Kaul, director of communications at Nokia India said the company was not in a position to comment on any developments that take place on the matter.

Earlier in a press statement Nokia had stated that its operations are “fully aligned with domestic and international tax rules as well as the bilaterally negotiated tax treaty between the Governments of India and Finland. Nokia has also said it will defend itself vigorously. Given that this case is ongoing, Nokia will not comment further at this stage.”

Nokia has two manufacturing units here in Sriperumbudur and Kolkata. In March this year, the handset maker was issued a notice by the Income Tax Department demanding payment of taxes for a period of six years starting from 2006-07.

The taxman asked Nokia India to pay around Rs.2,000 crore for not paying tax on the royalties it made to its Finland-based parent company Nokia Oyj for downloading software in its mobile devices that were manufactured in its Sriperumbudur facility since 2006. Royalty is paid on downloading software, which attracts a 10 per cent TDS (Tax Deducted at Source) .

Nokia challenged the matter in Delhi High Court which in turn handed over the case to the appeals division of income tax authorities. However, in May, Commissioner of Income-Tax (Appeals) dismissed the challenge. Nokia then said it would take the case back to Delhi High Court.

The company was also accused of flouting transfer pricing rules by the Income Tax Department but the penalty estimates have not yet been notified. Nevertheless, the total amount that Nokia India could be asked to pay up if both parties do not arrive at a solution, could be around Rs.12,000 crore, according to another official, who did not wish to be identified.

Nokia also has a research and development centre at Bangalore. From its Sriperumbudur unit, which has come under fire for the software download, Nokia exports mobile phones to US and Europe.

Last month, the issue was also taken up by commerce and industry minister Anand Sharma with Finnish foreign affairs minister Jan Vapaavuori and trade minister Alexander Stubb during his visit there.

There are over 120 Finnish companies present in India either through their subsidiaries, joint ventures or representative offices. Total investments made by Finland into India presently stands at $1.4 billion.

No comments:

Post a Comment