A multi-billion rupee tax demand from Indian government to Nokia

Indian tax officials stepping up claims against foreign companies commanded mobile phone company Nokia to pay 20.8 billion rupees in unpaid taxes. The order comes as Asia’s third-largest economy is uncompromisingly tracking tax claims against foreign companies to curb budget deficit and prevent a downgrade in its credit rating.

In February, Mobile Phone Company objected to tax officials entering its factory in Chennai. Nokia held it has spent more than $330 million in Chennai facility since 2006.

However, a stay has been granted by the Delhi High Court on this order. It was not clear how long the stay on the tax demand would remain in force. As reported by Nokia it filed a writ before the Delhi High Court petitioning against the order. The court has asked the tax department to file a "counter-affidavit" within one week.

The order from tax officials covered five financial years starting from 2006-07.  Nokia Oyj Company said it did not have to pay any part of the demand for now and would continue to fight the claim in the court of law.

Nokia’s finances are already being sieved by falling sales and this tax demand will further worsen there financial position. For the first time in its history Nokia has cut down its annual dividend payment to save its financial position. Nokia has noticed a rapid falling of its cash reserves down by 22 per cent from last year.

The company said in a statement "Nokia reiterates its position is that it is in full compliance with local laws as well as the bilaterally negotiated tax treaty between the governments of India and Finland and will defend itself vigorously,".

Tax authorities had accused Cadbury Plc., now part of U.S. snacks firm Mondelez International Inc. of misleading them about production from a new factory to avoid about $46 million in taxes in Feb, 2013

Other companies involved in tax disputes in India who have challenged the orders are Royal Dutch Shell Plc., Vodafone Group Plc. and LG Electronics Inc.

Countries like India are critical for Nokia’s challenge to hold on to global market share which it cannot afford to lose. India is widely seen as a key market for cheaper models like its Ash line of low-end smartphones.