NEW DELHI-- Nokia Corp. has initiated international arbitration
proceedings against India, as the Finnish company seeks to resolve
a multibillion-dollar tax dispute with the South Asian country's
government.
"Nokia has sent a letter under Finland-India Bilateral
Investment Treaty" to the India's prime minister, the company said
in a statement. "The letter seeks for amicable resolution of the
current tax disputes."
A letter to the head of state is the first step for a company
initiating international arbitration with a country. "Nokia is keen
to work with authorities in India to resolve the tax disputes," the
statement said.
A spokesman for the Indian prime minister's office couldn't be
reached for comment.
The dispute centers on the Helsinki-based company's factory in
the Southern Indian city of Chennai. Indian authorities allege that
Nokia avoided paying taxes by wrongfully claiming an exemption on
software exports.
Nokia denies it owes any taxes.
Tax authorities have estimated that Nokia's tax liabilities
could be as high as $3.4 billion. Until the dispute is resolved,
tax authorities have "frozen" the factory--in effect, tax officials
have taken authority over the factory.
The plant can still operate, but under the terms of the freeze,
Nokia can't sell or transfer the plant until the tax issue is
resolved.
Nokia challenged the tax bill, but the Supreme Court of India
said the company must pay the taxes and provide guarantees for any
future tax liabilities. Nokia has resisted making the guarantee
because Indian tax authorities want deposits for any future
liabilities paid in cash.
Indian tax officials also have ordered a special audit of Nokia
India's accounts by an external auditor.
Because of the freeze, the plant--one of the largest for the
company world-wide, with more than 6,600 employees--had to be
excluded from a $7.5 billion deal under which Nokia sold its
devices-and-services business to Microsoft Corp.
Nokia is facing another tax bill for 24 billion rupees ($404
million) from the Tamil Nadu state government, involving the same
factory, on allegations it wrongfully claimed export benefits when
phones manufactured at the facility were sold in the domestic
market. Nokia disputed the claim at the Madras High Court, also in
Tamil Nadu state. The court has ordered state tax officials to
review the tax bill.
The dispute with Nokia is part of a larger tax offensive waged
by the cash-strapped Indian state against multinationals. The
disputes have contributed to souring foreign investors' views of
India, Asia's third-largest economy. Vodafone Group PLC, AT&T
Inc. and SABMiller PLC are also in tax disputes with India.
Vodafone has begun international arbitration, while others are
disputing the tax bills at various courts in India.
Write to R. Jai Krishna at krishna.jai@wsj.com
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