3:16 pm - Wednesday January 19, 3814

Rs 3,500 crore guarantee from Nokia, IT Department demands

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NEW DELHI: Nokia’s efforts to sell its Chennai plant face another setback as tax authorities have insisted the company provide a guarantee of up to Rs 3,500 crore over an ongoing dispute before a freeze is lifted on assets.

The income-tax department filed the affidavit in the Delhi High Court a few days ago, said people with knowledge of the matter. The step effectively goes against an agreement between the two that proceeds from the factory’s sale would go into an escrow account pending a decision on the Rs 21,153-crore tax row.

A Nokia spokesperson and a company lawyer confirmed that such an affidavit had been filed.

The pact between the two sides was to be presented in the court on April 6, when the matter would come up for hearing. The move comes as the government has been saying that all efforts were being made to get the factory sold.

“We have started efforts in this direction. The Nokia plant should start functioning again and people will get employment,” Prime Minister Narendra Modi said in the Rajya Sabha on March 3. The move could undermine the government’s push to revive India’s image among investors globally by putting a stable, nonadversarial tax regime in place. However, it’s also not possible for the government to give up on tax proceedings based on retrospective amendments made in 2012 that has led to high-profile disputes with companies such as Vodafone, Cairn India and others. “Our main focus at the moment is what we have consistently said since October: with production at Chennai suspended, we call on the government to lift the asset freeze imposed by the tax authorities so we can explore potential opportunities for a sale to a suitable buyer,” the Nokia spokesperson said. “The approach of the government will lead to the perception that India is continuing with aggressive tax policies,” said Dinesh Kanabar, chief executive of tax advisory firm Dhruva Advisors and former KPMG India deputy CEO. “When the government decided not to go to the Supreme Court on the Vodafone tax case, it sent a very positive signal to the international community, and one would wish that government would be pragmatic. Likewise, in the Nokia case, asking for payment of huge demands which are yet to fructify, will not stand India in a good stead.”

Nokia has sought the PMO’s “immediate intervention” in resolving the asset freeze issue before the case comes up for hearing next week as “efforts to revive manufacturing operations are in imminent danger of irretrievable break-down”, the company said in a letter. The “shocking” approach of the income-tax department will effectively block Nokia India from selling the factory and “we would reach a deadlock”, Barry French, head of marketing and corporate affairs at Nokia Corp, said in the note. ET has reviewed a copy of the letter. “We strongly believe that such an undertaking demand is counter to the spirit of cooperation which has been arrived at under your guidance,” Nokia said in the letter.

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