The income tax department will soon move the Supreme Court to stop the transfer of Nokia’s Chennai plant’s assets to Microsoft. The transfer is integral to the $7.2-billion deal announced in September 2013. The department fears it won’t be able to recover the handset maker’s dues of over R21,000 crore and future liabilities if the deal is “consummated”.
The tax dispute pertains to alleged violation of withholding tax norms by Nokia India since 2006 while making royalty payments to its parent.
I-T sources said the Delhi High Court’s order allowing the deal to go ahead subject to the company fulfilling a host of conditions didn’t fully secure present and future tax dues of Nokia India and its parent Nokia Corporation. Raising the plea of “vicarious liability” on behalf of the Finnish company, the department said that the tax demand actually related to Nokia Finland for the reason that the substantive liability of tax on the income embedded in the remittances made by Nokia India lie in the hands of Nokia Finland.
The HC had, on December 12, lifted a freeze on the India assets of the Finnish company’s arm but the handset maker subsequently challenged the order in the apex court as it felt that the conditions imposed by the high court would hamper the deal.
Revenue authorities feel the deal with Microsoft has been structured in such a way as to avoid the payment of tax dues and “therefore, if the transfer of assets is allowed to be consummated without due protection of the current and future income-tax dues/liabilities, it may not be possible for the department to recover its legitimate dues thereafter”.
While the R21,000-crore tax demand on Nokia India pertained to 2006-2013, the department also envisages future tax liabilities on the company.
Last month, the high court had asked Nokia to give an undertaking that the parent company would be liable for the tax dues in India instead of depositing R3,500 crore in an escrow account for any future tax demand, as demanded by the I-T department.
The revenue authorities, sources said, would also seek continuation of the attachment of assets of Nokia India unless the latter fully paid its existing liability R3,862 crore including interest under Section 201(1)/201(1A), deposit R4,958 crore in an escrow account for adjustment against the tax liabilities likely to arise on account of transfer pricing adjustments and deposit in the escrow account the dividend amount of