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Nokia Hit Hard by India Tax Fine

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 {complink 3847|Nokia Corp.} 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.

16 comments on “Nokia Hit Hard by India Tax Fine

  1. FLYINGSCOT
    January 14, 2013

    I the UK several large US companies have been lambasted in the press over how little tax they pay to the UK.  Starbucks, Google and Amazon are companies that have been reported so it does not suprise me to hear about Nokia in India.

  2. rohscompliant
    January 14, 2013

    OK! I think I will stop paying my taxes, after all a bunch of dead beats are living pretty good off of my tax dollars taken from me. I get little to no value or services for the $$ I pay. If they lock me up they will put me in a minimum security white collar prison where I can get HD TV all the exercise time I want and 3 squares a day….among a whole host of other 'perks'….why work n pay taxes when I can get all that on your dime? Besides it will probably take them 10-15 yrs to catch up to me if I start now……HAH!!!

  3. Cryptoman
    January 14, 2013

    @rohscompliant

    I hear you! 🙂 World is an unfair place as we all know. However, it is more unfair to those who do not make millions. When someone (including companies) do not pay hundreds of millions of dollars, that is often not punished. However, if an ordinary person fails to declare a few dollars in income tax, the authorities immediately descend on him lke a bloodhound.

    My advice is if you have the millions to keep the dirty fingers of the tax man clear off them, then go ahead and do not pay tax as you will get away by not doing so.  There are many ways to avoid tax if you have large amounts of cash such as buying a painting for a few million dollars or buying your very own offshore cruiseliner! In some parts of the world, you can even buy diamonds and similar luxury items at 0% tax!

    However, if you have limited cash, you have limited tools available to you to avoid tax unfortunately. As I said, life is not fair but it is more unfair for the poor!

  4. _hm
    January 14, 2013

    Ethics must always be observed for long term success. Nokia should have known this and should not have taken short cut. They must accept resonsibility and move ahead.

     

  5. Daniel
    January 15, 2013

    Cargri, you are right last week tax department had officially issued a notice to Nokia for paying the tax arrears to Indian government. They had made the due from 2006 onward and Tax department starts scrutinize all such corporate tax payers. Recently such notices are issued to Vodafone, Bharathi, Google etc.

  6. Cryptoman
    January 15, 2013

    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.

  7. Barbara Jorgensen
    January 15, 2013

    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.

  8. Anand
    January 15, 2013

    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.

  9. bolaji ojo
    January 16, 2013

    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.

  10. Daniel
    January 21, 2013

    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.

  11. Daniel
    January 21, 2013

    “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.

  12. Cryptoman
    February 3, 2013

    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.

  13. Ariella
    February 3, 2013

    @Cryptoman, even in our days of huge figures, $2.5 billion is a significant amount. will they be able to cover it?

  14. Cryptoman
    February 4, 2013

    @Ariella

    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.

    I hope Nokia manages to pull through this one.

  15. Ariella
    February 4, 2013

    @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.

  16. laureenbarger
    December 21, 2013

    The taxes they are paying now is legal and rightful, previously they were paying very much less.

    Visit This Link

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