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Tax raids at Nokia India for allegedly evading taxes over $545 million

Finnish handset maker Nokia’s troubles seem to be getting worse by the day. On Tuesday, tax authorities in India raided the companies premises for a suspected tax evasion to the tune of more than half a billion dollars, according to reports.Nokia-logo-psd43421

Tax authorities suspect that the company has not paid tax in India, the report said. The phone maker, which counts India as one of its largest markets sells millions of handsets in the country which has over 900 million mobile phone subscriptions.

Accounting for over 20% market share in the first half of 2012, Nokia is the largest handset seller in the country but has been losing share to competition.

The raid comes at a time when the Finnish phonemaker is struggling to fend off competition from Korean electronics giant Samsung, Apple and homegrown brands such as Micromax and Lava.

A tax liability of more than half a billion dollars (Rs 3,000 crores) will not be easy on Nokia, which has been making losses in the recent quarters. In the third quarter, Nokia reported a $754 million operating loss on a topline of $9.49 billion.

For the first time in 14 years, Nokia will not be the top cellphone maker in the world as Samsung displaces the  phone maker as the highest selling handset maker.

Tax trouble ahead for other MNCs in India

Indian tax authorities have been turning up the heat on Multi National Companies (MNCs) operating in the country. Earlier, search giant Google was fined $14.5 million for alleged tax evasion. Companies like Google employ methods called the “double Irish” or the “Dutch Sandwich” to minimize tax liabilities in foreign countries.

For instance, in 2010, Google reduced its taxes by $3.1 billion by moving profits through Ireland and Netherlands to Bermuda which is a tax haven.

This practice is being questioned in India, where tax authorities said that the revenues generated by Google in India from Indian advertisers is taxable in India.

Tax officials said that Google’s entity in Ireland has been signing Adwords deals with Indian advertisers and not showing them as revenues taxable in India. The tax claim is now being heard by the appellate tribunal.

Vodafone case

The Income Tax department is also fighting a case against telecom player Vodafone and has asked them to pay more than $14,000 crore as tax and interest on the acquisition of Hutchison Essar by the UK based company for $11 billion. The tax authorities contend that transactions involving Indian assets must be taxed in India.

The Supreme Court later ruled in favor of the IT department. In the previous budget, the government introduced a retrospective clause which made it mandatory for companies to pay tax on acquisitions involving Indian assets.

Following a massive outcry from the industry, a committee headed by Parthasarathi Shome, the director and CEO of Indian Council for Research on International Economic Relations (ICRIER)to examine the ammendment, said that retrospective tax demands must be waived off. The waiver was only on demands made in retrospect.

Tax on imported packaged software

In the previous union budget, the government had also said that it will tax packaged software being sold in India retrospectively. Which means that a retrospective tax (from 1976) will be levied on all imported packaged software sold in the country. Multiple litigations are going on between tax authorities and companies such as Microsoft, GE and Sonata Software on this tax.

Industry reaction

The industry is anticipating the government to get tough on taxes in the coming budget and has raised concerns. On Sunday, Industry body Assocham said that the government should not reopen tax assessment cases which are beyond three years to harass taxpayers in its pr-budget memorandum to Finance Minister P Chidambaram.