Nokia May Seek International Arbitration To Resolve Multi-billion-dollar Tax Row In India

Mobile handset manufacturing giant Nokia, which has extensive India business, has alleged that India's tax claims against the Finnish firm’s subsidiaries don't comply with its bilateral pact with Finland and has threatened to file an international arbitration in case the issue is not settled 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 now asked for negotiations under Article 9(2) of BIT to settle the tax disputes involving its manufacturing plant in Chennai. The company has also sought an appointment with the government to begin talks. In the letter, Nokia has said if an "amicable settlement" is not reached, the company has the right to "submit claims to international arbitration."

"The letter seeks amicable resolution of the current tax disputes,” a Nokia spokesperson added.

The letter, dated April 30, was sent by the 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," the letter said.

Nokia might serve the arbitration notice within three months of sending the initial letter, a source informed.

"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.

India alleged Nokia had evaded taxes on software downloaded on handsets, manufactured at its Chennai unit, and demanded more than Rs 21,000 crore.
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