Also read: Nokia tax case: HC asks I-T to release Chennai plant
Reacting to the Nokia tax case, Dinesh Kanabar of KPMG India, said the issue was becoming a negative as it was being viewed as a move by one country's tax authority that could stall the progress of a major global deal.
Here is the verbatim transcript of the interview.
Q: On the face of it this seems somewhat positive for Nokia to the extent that it is allowed for the transfer to Microsoft to take place. However it doesn't seem to be a ruling on taxability in any fashion, so that stays in dispute, correct?
A: I would agree with that assessment. The comment I would put together is to say that here is situation where taxability of a transaction is still in the air. There is a global deal which is happening and the possibility not really certainty but a possibility of an Indian tax is becoming a barrier to transactions.
Q: But that at least has been decided today because they have said we move the liability to Nokia Finland. We are not holding Microsoft responsible as yet unless Nokia or Nokia Finland default and we are allowing for the transfer of the asset to take place So, that is at least out of the way?
A: That is out of the way for the moment. What I was trying to say is that over the last fortnight that this transaction has been in the media what we are seeing is the ability of the Indian tax office to really come back and say that a global transaction or a part of a global transaction cannot be implemented in India on account of a potential tax liability in India.
Q: Can we talk a little bit about the taxability at hand here? Can you throw some light on this TDS default and whether it could be precedent setting for other foreign investors or other investors in the country?
A: I must confess that I do not know the full details of the facts. The issue here is taxability or remittances which have happened out of India and the characterisation of that and that has been a subject matter of debate for quite sometime. It is not the first case. There are several other cases where the issue of characterisation of a payment has come up for consideration.
There is a sharp division of views between how India would like to characterise and how some of the foreign jurisdictions and how the assessees would like the characterisation of the payment to happen.
If the characterisation falls within the royalties or fees for technical services then that would be subject to tax on a gross basis and whether that stand of the tax office is right or not is up for judicial scrutiny, there are decisions for and against and until we hear from the Supreme Court we will not know really which way is this going.
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