Nokia invokes India-Finland bilateral treaty to solve tax row
May, 15th 2014
With tax authorities pressing with over Rs 21,000 crore in unpaid dues, Finnish telecom major Nokia has invoked the Bilateral Investment Promotion and Protection Agreement (BIPA) India has with Finland to resolve the dispute.
Nokia late last month wrote to Prime Minister invoking dispute settlement clause in the India-Finland BIPA to settle the row that had led to its Chennai plant being left out of the over $7.2-billion deal with Microsoft.
The treaty provides for amicable conciliation proceedings and arbitration under local and the United Nations Commission on International Trade Law (UNCITRAL). "Nokia is keen to work with authorities in India to resolve the tax disputes. As one of our actions, Nokia has sent a letter under Finland India Bilateral Investment Treaty (BIT) to the Prime Minister of India. The letter seeks for amicable resolution of the current tax disputes," a Nokia spokesperson said.
Nokia, which last month completed sale of its handset business to Microsoft for over $7.2 billion, could not sell its Chennai manufacturing plant to the software giant as it is embroiled in the tax dispute with the Income Tax Department and the Tamil Nadu Government.
The company had approached the Prime Minister's Office (PMO) last month with the request.
However, BIPA clauses state that if a dispute between the country and the investor cannot be settled amicably within 3 months, the investor can approach local courts or seek international conciliation under UNCITRAL Conciliation Rules for its resolution.
The party can also approach the International Centre for Settlement of Investment Disputes or approach an adhoc arbitral tribunal under the Arbitration Rules of UNCITRA. On the status of request made by the Finnish government last year to consider resolving the tax row under mutual agreement procedure, Nokia said: "Both the governments started the mutual agreement process (MAP) with an aim to resolve double taxation as per the provisions of India - Finland double tax treaty and negotiations are still on." The application for negotiated settlement of the tax dispute was filed under the Double Taxation Avoidance Agreement (DTAA) between India and Finland. .
The mutual agreement process (MAP), which is a part of DTAA, provides for an alternative mechanism for resolution of dispute.
The government, however, is not bound to accept the request under MAP and it had earlier rejected a similar request in the case of Vodafone, which is also facing a tax dispute with the government.
Law firm Khaitan & Co Partner Sanjay Sanghvi said: "While this is a significant development, I believe 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."
In March this year, the Tamil Nadu government served a Rs 2,400 crore notice on Nokia, saying the firm sold products from the Chennai plant in the domestic market instead of shipping them overseas.
Nokia is also fighting a Rs 21,000-crore claim by the Income Tax Department over royalty payments made to its parent company in Finland.
The Supreme Court ordered Nokia India on March 14 to give a Rs 3,500 crore guarantee before it transfers the Chennai plant to Microsoft, which affected the firm's deal with Microsoft that also involved transfer of the plant.