Nokia plea against tax demand rejected

Department wants company to pay tax on software used by Indian arm from parent

Finnish mobile handset maker Nokia would now have to prepare itself for a lengthy court battle with the income tax department over the Rs 2,000-crore tax demand raised by the latter.

On Friday the commissioner of income tax appeals confirmed the order of the assessment officer that raised the tax demand,against which Nokia had filed the appeal.

While confirming the assessment order,the commissioner also dismissed the objections raised by Nokia on the assessment order,sources said.

The firm said it is disappointed by the decision but will not give up. Nokia will defend itself vigorously in this case and against any other Indian tax allegations,using all channels available, it said in a statement. These include taking the case back to the Delhi High Court. In addition to the legal action Nokia is taking in India,it is worth remembering that the ministry of finance in Finland has launched the Mutual Agreement Procedure MAP with its counterpart in India under the bilateral Double Taxation Avoidance Agreement to reach a common understanding on the matter. Nokia will act quickly and decisively to protect its interests.

The I-T department wants the firm to pay tax on payments made by the MNCs Indian arm to its parent for the use of the latters software in handsets made in India. The MAP that is under consideration offers the possibility of the two countries amicably deciding how much of the groups profits should be attributed to each country and determine the tax liability in each country accordingly.

Nokia reiterates its position that it is in full compliance with Indian laws as well as the bilaterally negotiated tax treaty between the governments of India and Finland. Since establishing the Chennai factory in 2006,indeed since starting business operations in India in the mid-1990s,Nokia has been scrutinised by the authorities regularly,and its policies have been validated by the Indian and Finnish tax authorities in the normal course of tax proceedings, the company said.

MAP is a closed-door meeting between tax authorities in two or more countries and is a taxpayer-friendly scheme,since the outcome is binding on the department but not on the company. In case of an adverse outcome,the taxpayer would still be able to approach courts and other quasi-judicial platforms under domestic law to get the grievance addressed.

Story continues below this ad

The I-T department considers Nokia in default of deducting tax on the payments made to its Finnish parent for use of software,which the authorities hold as royalty.

The company last month got an interim stay order from the Delhi High Court against any coercive action from the department,which will be in force until early June. The court had also asked Nokia to appeal against the tax demand with the commissioner of income tax appeals,who has now confirmed the tax demand. FE