Nokia hit with new $414m India tax demand

©AFP

Nokia has been hit with a new $414m tax demand from India’s revenue department, adding a fresh blow to the Finnish group’s operations in Asia’s third-largest economy in the aftermath of a damaging series of other taxation disputes.

On Friday, Nokia described as “absurd” a claim for sales tax from authorities in the southern city of Chennai, and said it had issued a writ to contest a demand for unpaid sales tax, relating to phones manufactured at its main factory in the city.

The company’s latest setback follows an earlier series of disputes over whether Nokia will be allowed to transfer its Indian assets as part of its €5.4bn phone business sale to Microsoft, which had previously left the telecoms group with a total tax liability in the region of $1.1bn.

Nokia is only the latest of a growing list of global companies including Vodafone and IBM to fall foul of India’s tax inspectors, in disputes that have dealt a severe blow to the country’s reputation as a friendly location for international investment.

This week, shares in Edinburgh-based Cairn Energy plunged more than a tenth following the suspension of a $300m share buyback, after India’s revenue service had forbidden the company from selling shares it owns in its former Indian subsidiary.

A spokesman for Nokia said the latest claim against the company had “no merit whatsoever, and it could even be considered absurd”.

“If you look at Vodafone, Shell, IBM and now also Cairn most recently, it is quite clear that foreign companies are facing increasingly aggressive and arbitrary treatment,” the spokesman said.

Friday’s development comes barely a week after Nokia suffered a major legal setback in its attempts to transfer its Indian assets to Microsoft, when the group lost an appeal in front of India’s Supreme Court.

Tax analysts now suggest that the company is unlikely to be able to include its Indian factory as part of the Microsoft transaction, although Nokia says it is still trying to find a way to complete the transfer.

Nokia stressed on Friday that its latest setback would have no bearing on the likelihood of the factory being transferred.

The latest $300m demand suggests Nokia had claimed to export phones manufactured in its facility in Chennai, only actually to sell them covertly in India’s domestic market.

In a statement, the group said the allegation had “no basis in reality whatsoever; it could easily be rebuffed by a check of documentation provided to various governmental departments, including customs”.

The timing of the latest claim could be related to pressures placed upon India’s revenue department in the run-up to the end of the fiscal year on March 31, according to Zia Modi, managing partner at AZB, one India’s leading corporate law firms.

“The tax authorities are given strict targets to reach by the government,” she said. “So you can always expect to see a flurry of claims at this time of year . . . for many international companies it is a headache.”