Nokia Oyj (NOK1V) could face an increased tax bill of 210 billion rupees ($3.4 billion) over a dispute with India’s authorities, according to a government lawyer.
India’s Income Tax Department may add penalties and interest to its current 20.8 billion-rupee demand should a New Delhi Court order Nokia’s local unit to pay taxes on royalties to its parent company, said Mohan Parasaran, the government lawyer for the case. Nokia said the claims are without merit.
The tax threat adds to mounting demands against foreign companies in India where investors including Vodafone Group Plc (VOD), Royal Dutch Shell Plc and International Business Machines Corp. are facing disputes over so-called transfer pricing. A local court froze some of Nokia’s assets -- including a mobile-phone factory in Chennai -- in October, complicating the Espoo, Finland-based company’s $7.2 billion sale of its handset business to Microsoft Corp. (MSFT) to focus on network equipment.
A two-judge panel headed by Sanjay Khanna, meeting for a third day in New Delhi today, wasn’t able to reach a decision on Nokia’s request to release those assets.
Nokia has said it may not be able to transfer the Chennai plant, which was started in 2006, to Microsoft if the asset freeze continues beyond Dec. 12.
India is the world’s fastest-growing smartphone market, with Nokia ranking fifth among vendors, according to CyberMedia Research.
As of March, more than 2 trillion rupees in tax demands were locked up in various Indian courts, estimates by BMR Legal in New Delhi show. Indian tax authorities and courts have ruled on more than 4,500 transfer-pricing cases since 2011 valued at a combined 1.1 trillion rupees, according to BMR.
The Bombay High Court on Dec. 3 ordered Vodafone India to take its $200 million transfer-pricing case to a dispute resolution panel after ruling that tax authorities had not properly evaluated the merits of the income being taxed, said Mukesh Butani, a partner at BMR.
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