Nokia Threat­ens Int’l Ar­bi­tra­tion if Tax Claim Is­sue’s Not Re­solved

Telco says tax claims don’t com­ply with In­dia-Fin­land in­vest­ment treaty

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Nokia has al­leged that In­dia’s tax claims on the firm don’t com­ply with its bi­lat­eral agree­ment with Fin­land and threat­ened to file an in­ter­na­tional ar­bi­tra­tion if the is­sue is not re­solved am­i­ca­bly. In­dia’s de­ci­sion to change tax laws with ret­ro­spec­tive ef­fect and sub­stan­tial tax claims against Nokia sub­sidiaries don’t com­ply with its obli­ga­tions un­der the In­dia-Fin­land Bi­lat­eral In­vest­ment Treaty (BIT) and hurt the Helsinki-based firm’s in­vest­ments in In­dia, Nokia said in a let­ter to the prime min­is­ter’s of­fice. It has sought ne­go­ti­a­tions un­der the Ar­ti­cle 9(2) of BIT to reach an am­i­ca­ble res­o­lu­tion of the tax dis­putes re­lated to its man­u­fac­tur­ing plant in Chen­nai, and has also asked for a date and time from the govern­ment to be­gin talks. The let­ter also said that in case an “am­i­ca­ble set­tle­ment” is not reached, Nokia had the right to “sub­mit claims to in­ter­na­tional ar­bi­tra­tion”. A Nokia spokesper­son said the com­pany was keen to work with In­dian au­thor­i­ties to re­solve the is­sue. “The let­ter seeks for am­i­ca­ble res­o­lu­tion of the cur­rent tax dis­putes,” the per­son said.

A per­son fa­mil­iar with the mat­ter said Nokia could serve a for­mal no­tice of ar­bi­tra­tion within three months of send­ing the ini­tial let­ter.

In­dia ret­ro­spec­tively amended its laws re­lat­ing to tax­a­tion of cross-bor­der deals in 2012, which led to re-open­ing of its .` 20,000-crore tax dis­pute with Vodafone, even af­ter the UK-based telecom op­er­a­tor had won a long-drawn le­gal bat­tle with the govern­ment.

Nokia’s let­ter to the PMO dated April 30 was sent by law firm Allen & Overy LLP. “The In­dian govern­ment has re­cently made cer­tain changes to its tax leg­is­la­tion. In par­tic­u­lar, in the Fi­nance Act (2012), In­dia ret­ro­spec­tively amended sec­tion 9(1)(vi) of the In­come Tax Act (1961). In ad­di­tion, In­dian tax au­thor­i­ties have raised sub­stan­tial tax de­mands against Nokia and its sub­sidiaries seek­ing al­legedly un­paid taxes, im­posed freez­ing or­ders on var­i­ous Nokia as­sets and failed to com­ply with var­i­ous other obli­ga­tions owed to Nokia’s sub­sidiaries,” it said.

“These and other mea­sures taken by In­dia sub­stan­tially al­ter the le­gal frame­work for the in­vest­ments that Nokia has made in In­dia. In­dia's ac­tions are not in com­pli­ance with its obli­ga­tions un­der the BIT, and they have caused se­ri­ous and sub­stan­tial harm to Nokia's in­vest­ments,” it added.

This is the lat­est in a slew of tax dis- putes the coun­try’s next govern­ment will have to deal with when it as­sumes of­fice likely by the end of this month.

San­jay Sanghvi, part­ner at law firm Khai­tan & Co, said, “The govern­ment will first ex­am­ine whether this with­hold­ing tax re­lated dis­pute can be a sub­ject mat­ter of con­sid­er­a­tion un­der In­dia–Fin­land In­vest­ment Pro­tec­tion Agree­ment and whether this agree­ment will over­ride the pro­vi­sions of In­dian in­come-tax law.”

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