Column : From Foxconn to Nokia, and more
Every case differs from the other, and transfer pricing is a hotly debated subject all over the world, but any tax demand has to be seen in the context of the impact this will have on India’s desire to grow as a manufacturing base. Given that, going by the budget documents, India gave R2,12,167 crore of excise duty concessions to the manufacturing sector in FY12, and another R51,292 crore of concessions to corporates in general, it’s a fair assumption that India does want to grow its manufacturing. Which is why, as FE has argued in the past, the fact that there has been an 85% increase in the number of transfer pricing demands by the taxman in FY12—from R1,220 crore in FY06 to R24,111 crore in FY11 and to R44,532 crore in FY12—is deeply disturbing.
In the case of Nokia, apart from the transfer pricing, there are elements of the Vodafone retrospective case as well. Nokia has been issued a tax demand of R3,000 crore for not paying taxes on the software it was importing from its Finnish parent over the years. The problem here is the explanatory memorandum of the budget (page 20 for those who’re interested) itself says “Some judicial decisions have