The Income-Tax Department believes that besides income-tax violations, Nokia India may have flouted transfer pricing norms.

The total tax implication for the Finnish mobile handset manufacturer could be over Rs 10,000 crore, said IT officials, speaking on condition of anonymity.

The Department’s investigation team in Chennai has submitted a 150-page interim report on possible tax violation by Nokia to its headquarters in Delhi. As part of the initial investigation into tax deduction, officials have also found that Nokia may have violated transfer pricing norms. The Indian subsidiary transferred profits to its headquarters. Due to the violation, this will now be reversed and considered as income, which would be around Rs 30,000 crore. On this amount, there will be a 30 per cent tax, which works out to Rs 9,000 crore, he said.

According to the Department, it had been found that in the last six years Nokia India had been downloading software from its parent company in Finland to manufacture mobile devices worth Rs 30,000 crore at the Sriperumbudur plant. Royalty is paid for the software downloaded. This, in turn, attracts a 10 per cent TDS (tax deduction at source) amounting to Rs 3,000 crore. Nokia, the official said, had failed to do this and pay to the Government. “We will get the TDS amount of Rs 3,000 crore from Nokia before March end,” he said. Officials in Delhi will now issue an order on the amount, including penalty if any, payable by Nokia, to the Department, the official said.

The Assessment Officer in Delhi will decide on the penalty on the TDS amount. Nokia can appeal against the order.

A Nokia spokesperson said, “Nokia is fully cooperating with the Indian tax authorities. We are duly responding to all queries raised by them and extending our full support in completing the investigation… We always observe applicable laws and rulings in the countries where we operate. Since we arrived in India 17 years ago, we have honoured all local laws and paid all taxes legally due.”

raja.simhan@thehindu.co.in

(This article was published on January 30, 2013)
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