India to move Supreme Court to stop Nokia from handing over Chennai assets to Microsoft Corporation

Written by Indu Bhan | Indu Bhan | New Delhi | Updated: Mar 12 2014, 19:17pm hrs
NokiaThe income tax department will soon move the Supreme Court to stop the transfer of Nokia?s Chennai plant?s assets to Microsoft. Reuters
The income tax department will soon move the Supreme Court to stop the transfer of Nokias Chennai plants assets to Microsoft. The transfer is integral to the $7.2-billion deal announced in September 2013. The department fears it wont be able to recover the handset makers dues of over R21,000 crore and future liabilities if the deal is consummated.

The tax dispute pertains to alleged violation of withholding tax norms by Nokia India since 2006 while making royalty payments to its parent.

I-T sources said the Delhi High Courts order allowing the deal to go ahead subject to the company fulfilling a host of conditions didnt fully secure present and future tax dues of Nokia India and its parent Nokia Corporation. Raising the plea of vicarious liability on behalf of the Finnish company, the department said that the tax demand actually related to Nokia Finland for the reason that the substantive liability of tax on the income embedded in the remittances made by Nokia India lie in the hands of Nokia Finland.

The HC had, on December 12, lifted a freeze on the India assets of the Finnish companys arm but the handset maker subsequently challenged the order in the apex court as it felt that the conditions imposed by the high court would hamper the deal.

Revenue authorities feel the deal with Microsoft has been structured in such a way as to avoid the payment of tax dues and therefore, if the transfer of assets is allowed to be consummated without due protection of the current and future income-tax dues/liabilities, it may not be possible for the department to recover its legitimate dues thereafter.

While the R21,000-crore tax demand on Nokia India pertained to 2006-2013, the department also envisages future tax liabilities on the company.

Last month, the high court had asked Nokia to give an undertaking that the parent company would be liable for the tax dues in India instead of depositing R3,500 crore in an escrow account for any future tax demand, as demanded by the I-T department.

The revenue authorities, sources said, would also seek continuation of the attachment of assets of Nokia India unless the latter fully paid its existing liability R3,862 crore including interest under Section 201(1)/201(1A), deposit R4,958 crore in an escrow account for adjustment against the tax liabilities likely to arise on account of transfer pricing adjustments and deposit in the escrow account the dividend amount of R3,500 crore that was repatriated to Nokia Finland in August 2013 under allegedly fraudulent circumstances.

Besides, the department wants Nokia Corporation to give an unqualified bank guarantee for any balance demand, including demand on account of interest and penalty.

In its petition, Nokia had sought immediate and smooth transfer of assets of its Chennai plant so that the deal with Microsoft can be concluded.

Meanwhile, an apex court bench headed by Justice AR Dave on Tuesday reiterated that Nokia India should weigh options of bringing money from its parent company. It also asked the government to consider a proposal to protect Indias revenue. The matter will coming up for hearing on Thursday.