Indian Tax Authorities Pursue Nokia with New Tax Claim

The southern state of Tamil Nadu filed a lawsuit seeking what it claims are unpaid taxes for phone sales from Nokia Corp. The new court filing, separate from an earlier Indian tax claim against the Finland-based company, alleges that Nokia failed to pay appropriate sales taxes for devices made at its phone factory in Chennai. The state is seeking roughly €300 million.

According to an Indian tax official, the lawsuit alleges that Nokia failed to provide documentation to prove that it exports its handsets, and therefore isn’t exempt from some taxes.

Nokia believes the new claims are “absurd,” and said it has filed a writ petition to protest the suit. The company also said that its operations in India have been audited regularly by Indian tax authorities since 2006.

“If the Tamil Nadu tax department takes a close look at the documents they themselves have, they would see ample evidence that the devices Nokia makes in India indeed are exported,” Mr. Young said.

The Chennai factory employs 8,000 people and produces close to 20 Nokia phone models. According to Indian investment rules, Nokia is eligible for tax exemptions on the basis that it exports handsets made at the Chennai plant.

The troubles arise just as the company’s devices unit was to be transferred to Microsoft Corp. Nokia suggests that the latest suit will have no effect on the transfer. However, Indian authorities say that the factory cannot be transferred to Microsoft until Nokia settles a separate €250 million tax dispute with the country. In the other claim, India’s tax authority alleges that Nokia avoided taxes by wrongfully claiming an exemption on software exports. Once again, Nokia disagrees. Should Nokia be unable to resolve the issue before March 31, the Chennai plant will not be included in the Microsoft transfer which will force the company to remain as a contract manufacturer of mobile phones for Microsoft for an unknown amount of time.

Nokia’s situation worsened earlier this month following India’s Supreme Court ruling asking for the company to pay the prior tax demand along with a 35 billion rupee deposit for future tax liabilities to end a freeze of the Chennai factory’s assets. Nokia was “disappointed” by the ruling.

Source: Grundberg, Sven, “Nokia Contends With New India Tax Claim,” The Wall Street Journal, March 23rd, 2014