Nokia Threatens Int’l Arbitration if Tax Claim Issue’s Not Resolved
Telco says tax claims don’t comply with India-Finland investment treaty
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.”