Nokia hit with second tax claim in India

Indian taxes are proving to be a sticky problem for Nokia as it attempts to transfer its devices business to Microsoft.

Nokia is fighting a second tax demand in India after the Tamil Nadu state in the south of the country filed a suit over unpaid taxes on devices alleged to have been sold within India.

The Tamil Nadu government is claiming Nokia owes it $414m in unpaid taxes on devices produced at its Chennai plant that the government claims were sold within India instead of being exported. Had they been exported, Nokia would be exempt from the taxes.

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Nokia on Friday filed a writ at the Madras High Court contesting the demand, calling the claims by the Tamil Nadu government's tax department "absurd" .

"Nokia considers the claim to be completely without merit and counter to domestic tax laws," it said in a statement.

"In India, exports are by law exempt from tax, and Nokia has proved consistently that devices produced at Chennai are exported abroad. Indeed, the company has been regularly assessed and audited by the tax authorities since 2006 without incident, and it has also won numerous export awards from governmental organisations.

"It is absurd that the Tamil Nadu tax authority is now claiming that devices made in Chennai were not exported and were instead sold domestically in India. We contend that this allegation has no basis in reality whatsoever; it could easily be rebuffed by a check of documentation provided to various governmental departments including Customs."

The new claim comes just a week India's Supreme Court ordered Nokia to pay a 35bn rupee ($572m) guarantee before it transfers its Chennai plant to Microsoft as part of the sale of its devices and services unit. The order relates to Nokia's long-running dispute with Indian tax authorities over $340 million in unpaid taxes, which could balloon to $3.4bn .

Last December, Nokia had agreed to pay Indian authorities €270m to unfreeze its assets in order to complete the sale of the devices and service business to Microsoft; however, a Delhi High Court also wanted it to give a further 35bn rupee guarantee, which Nokia contested and subsequently lost.

Indian authorities claim Nokia's subsidiary in the country owed the money after allegedly not deducting tax on payments made to Nokia in Finland for software installed on phones made in India since 2006.

Nokia had hoped to transfer its devices business, including the Chennai plant, to Microsoft by the end of the first quarter. After it was ordered to pay the additional $572m guarantee, Nokia said its troubles in India were not expected to affect the timing of the sale , but today Nokia announced the sale would occur in April instead.

"Nokia and Microsoft have already received most of the required regulatory approvals, including approvals from the European Commission and the US Department of Justice. Furthermore, Nokia and Microsoft continue to make good progress related to the closing conditions and integration planning. However, the transaction is pending approvals from certain antitrust authorities in Asia which are still conducting their reviews," Nokia said in a statement.

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