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India's most trusted brand Nokia hit with £1.5bn tax bill

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Nokia’s efforts to turn around its flagging fortunes received a jolt this week after it emerged that income tax officials in India are preparing to hit the firm with a Rs. 13,000 crore (£1.5bn) bill for tax violations.

In a classic piece of timing, the news came as Europe’s largest technology company was named winner of India’s annual Brand Trust Report for the third year in a row.

Tax officials have been onto Nokia for some time now and dropped by the firm’s Sriperumbudur factory near Chennai and its offices in the New Delhi suburb of Gurgaon last month. Officials from Nokia’s auditing firm PriceWaterhouseCoopers are also believed to have been questioned as part of the ongoing investigation.

The resulting 150-page report has now been sent to the Income Tax department HQ in Delhi, an anonymous senior tax official told the local Economic Times.

"Nokia will have to pay Rs 13,000 crore before March 31,” he said. Of that sum, Rs. 3,000 crore (£355.6m) is apparently for tax violations and Rs 10,000 crore (£1.2bn) is related to transfer pricing irregularities.

Transfer pricing – which refers to the trade between two related companies – is one of the hottest areas of international tax fraud, occurring typically when two subsidiaries or a parent and its subsidiary distort the price of traded goods to lower the overall tax bill.

India’s Income Tax department alleges in the report that Nokia hasn’t paid tax on certain software supplies and is trying to reorganise its business to circumvent direct and indirect tax liabilities, according to Economic Times.

The tax clampdown is part of a wider campaign by Indian officials focused on large multinationals in the region, with Vodafone and Google already on the receiving end of some large bills.

Having just last week finally announced a pre-tax profit of €375m for the fourth quarter of 2012, Nokia will be hoping it can come to some kind of agreement to shave a little off this mammoth tax bill.

In that context, its award for India’s most trusted brand, is unlikely to enthuse too many at the beleaguered firm.

Samsung and Sony took second and third spots in the report, which is compiled by India's Trust Research Advisory from interviews with over 2,000 corporate “influencers”.

Nokia couldn't immediately be reached for comment. ®

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