While casually browsing online magazines over the weekend, I came across an article that nearly made me spill my coffee on my keyboard. According to the Register, India has knocked on the door and asked Nokia Corp. (NYSE: NOK) for 30 billion rupees (nearly $545 million) for irregularities related to tax matters. Nokia says it is assisting authorities in this inquiry.
The Times of India reported that 20 income tax officials raided Nokia's Chennai facilities on the suspicion that the company has evaded taxes. Following this report, Nokia's stock value fell as much as 6.5 percent.
Nokia is not the only foreign company in India that has been hit hard by the tax man recently. Vodafone has been charged $3.5 billion by the Indian government after a six-year battle over its acquisition of Hutchison Whampoa's Indian business. Google received a $13.9 million fine, because Google India paid $21.9 million to Google Ireland for distribution fees without deducting taxes as required by a treaty between the two countries.
These fines indicate that businesses are taking advantage of tax loopholes. Governments are financially strapped. Competition is fierce, and the tax bills for some corporations are significant. Avoiding taxes may seem worthwhile for some companies. However, in Nokia's case, I think the true cost will be more than just money.
Despite Nokia's willingness to help out with this enquiry, the tax bill will have a significant impact on the company. I mentioned about a month ago that Nokia was selling its headquarters in Finland for €170 million ($220 million); that is less than half the amount being sought by the Indian authorities. Though the company is taking tough action to balance its checkbook, this tax must have left it with a very bitter taste.
Another important point to remember is that Nokia is relying on its success in emerging markets such as India to regain its strong global position. India has one of the fastest-growing mobile phone markets in the world, and it holds the key to Nokia's future growth. The company has been in India since 1995 and is one of the market leaders there. From a publicity point of view, this fine definitely will not help Nokia's reputation in India. Given the size of the tax penalty, I wonder if Nokia will consider making part of its Indian workforce redundant to compensate for losses in 2013. If that happens, it is likely to jeopardize the company's growth targets in the region.
Nokia must be wondering if there is a light at the end of this dark tunnel. In addition to the intense competition from rivals such as Apple and Samsung, this tax penalty could be a major blow for the Finnish company.
@Cryptoman Yes, it would make sense to allow Nokia time to make the payments because if it is forced to fold because it can't come up with that sum all at once, they'd end up getting nothing or very close to nothing.
To be honest with you, when I read that figure, it gave me the chills. I did feel bad about Nokia.
After six quarters of losses, in Q4 of 2012, Nokia reported a profit for the first time. Unfortunately this profit is dwarfed by the $2.5 billion; it is only $585 million... I have no idea how Nokia will pay for this penalty but one thing is for sure. This penalty will seriously rock its boat.
One thing I don't know is whether this penalty can be paid inb installments to ease the pressure on Nokia. I know that Nokia has been selected the most reliable company of the year three times in a row in India for the last 3 years so the public has a positive feeling about Nokia over there. However, whether the revenues office will be equally supportive is yet to be seen.
The 150 page report that has just been prepared on Nokia has been submitted to the Income Revenue Department in India. This report states Nokia will need to pay a sum of $2.5 billion in compensation for the tax losses.
$600 million of this total amount is due to tax evasion while $1.9 billion is for the illegalities in transfer pricing. Transfer pricing is a term used for defining the suitable pricing of goods and services exchanged between people and companies.
Nokia has not made a statement on this new development yet but it is expected that it will go to court to appeal.
"US court once ruled that there are no reasons for anyone to pay more in taxes than they are legally obliged to pay. However, any enterprise that also deliberately avoids paying taxes illegally should realize it is committing a crime"
Bolaji, as per law they are suppose to be like that. As long as tax departments are not scrutinizing the corporate world, they can enjoy that. Moreover, it's not easy to scrutinize them from official point of view due to various reasons.
Cryptoman, the first issue is corporate tax payers can lag as much as they want because income tax departments are not securitizing them properly. So they can rotate the money for running business and moreover tax department won't play with them. They are more interested in individual tax players, where they can threat them and collect the tax.
Most companies have tens and sometimes hundreds of tax experts on their staff who specialize in figuring out ways of reducing tax obligations. A US court once ruled that there are no reasons for anyone to pay more in taxes than they are legally obliged to pay. However, any enterprise that also deliberately avoids paying taxes illegally should realize it is committing a crime.
It's disappointing to read that Nokia possibly evaded taxes, but they certainly aren't the only compnay to take advantage of tax loopholes.
@Barbara, I agree with you. Its really disappointing to see Nokia trying to evade taxes. But its not just Nokia that should be blamed for this. Income-tax officials have said that PwC has advised Nokia and they were aware of the tax evaded and accounting practices. This means that PwC is equally culprit.
It's disappointing to read that Nokia possibly evaded taxes, but they certainly aren't the only compnay to take advantage of tax loopholes. It sounds like India is merely enforcing the laws it has, and other nations are discussing the same strategy. It will be really bad for tech companies if more countries succeed at enforcing their tax laws. In fact, it could be a disaster.
It is interesting to see despite the hefty fines, multinational companies still take the risk and try to avoid paying tax. As we all know Nokia is having troubles in its cashflow department and saving some money by not paying tax may make sense. However, if Google is also doing the same even though it has a strong financial outlook, this risk must definitely be worth taking.
Consumers are improperly discarding old phones although most of these can be recycled at a huge gain to the supply chain and the environment. Where are the recyclers?
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Archived Dialogues
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Euro-Crisis: What It Means for High-Tech Firms Join EBN Editor in Chief Bolaji Ojo and Contributing Editor Jennifer Baljko on Thursday, July 12, at 10:00 a.m. EDT for a Live Chat on high-tech and Europe's economic difficulties.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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