Nokia faces a potentially damaging escalation in its tax disagreement with India's government, as the country's revenue department threatens to levy a further charge bringing the telecom group's total liability to about $1.1bn, according to people familiar with situation.
News of the possible new demand comes at a critical juncture for the Finnish group as its awaits a last-minute court ruling due on Thursday in India on whether the dispute will bar it from transferring its Indian assets to Microsoft as part of the group's €5.4bn phone business sale.
The pending court ruling leaves Nokia racing against the clock to meet an internal deadline – set for the close of business on Wednesday in the US – meaning that a decision in its favour on Thursday in New Delhi could still allow the mobile group to complete its asset transfer.
Nokia's original tax dispute with India's revenue department concerned a Rs23bn ($375m) claim relating to payments made by Nokia's Indian subsidiary to its parent company in Finland – a dispute kicked off earlier this year by a raid on the company's main facility in the southern Indian city of Chennai.
The original dispute was then complicated by the deal with Microsoft, announced in September, given that moves by India's authorities to freeze Nokia's physical assets in Chennai effectively precluded a transfer to the US-based software group.
However, two people familiar with the situation confirmed that India's revenue department expects to raise a further tax claim of Rs45bn ($733m), relating to alleged non-payment of similar taxes on international transfers to its parent, but over a longer time frame.
The new demand, on top of the existing claim, would bring the total liability to about $1.1bn, making Nokia's case one of the largest tax disputes in India by value.
Nokia's difficulties follow a series of high-profile tax rows affecting major international companies in India, including Vodafone and IBM, and are likely further to dent the perception of India as a welcoming environment for investment.
Although experts say the case is unlikely to have a major affect on the overall deal with Microsoft, it nonetheless demonstrates the way in which India's aggressive tax department is able affect business deals beyond Asia's third-largest economy, analysts said.
"I think this new move is a contentious demand, and the tax office is clearly demanding its pound of flesh, because they know Nokia is in a bind, while they are trying to end this case, with the Microsoft deadline looming," said Dinesh Kanabar, head of tax at KPMG in India.
Nokia dismissed the new potential claim as speculative, saying it "has not been served with any claim beyond the what it received in February. In recent months, we have seen and read about many claims from the tax authorities. We feel they are without merit and will defend ourselves vigorously in court."
The company also confirmed that it had offered €355 ($488m) to India's tax authorities as a security against the tax liability, as part of a deal allowing the department to unfreeze its assets and to its Chennai factory to be transferred to Microsoft by the group's deadline.
Arun Anandagiri, editor of Taxsutra, an Indian tax information service, said it was not unusual for India's revenue service to let it be known that they planned to make a fresh future demand in such cases.
"This is what they call an 'anticipated' demand, meaning that the order has not been raised but it is likely to be raised in the near future, perhaps in the next few months," Mr Anandagiri said.
Copyright The Financial Times Limited 2013. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.
via Technology - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNFkt0Fk3r_nyS2t2YPKkDmFyU7AKg&url=http://www.ft.com/cms/s/0/142fe2e6-623d-11e3-99d1-00144feabdc0.html
Put the internet to work for you.
0 comments:
Post a Comment