Court verdict in Vodafone case will help Nokia, other cos: Prez

Allaying investors fear, President Pranab Mukherjee on Tuesday said that the Bombay High Court verdict in the Vodafone taxation case, if prevails, will help Finnish phone manufacturer Nokia as also 26 others.

In his interview to Finnish media ahead of his departure to Helsinki today, Mukherjee here said the concept of the Indian Tax Department is that a transfer of share is a transfer of income and, therefore, when the question of income transfer comes, it will be subject to taxation because like most of the countries, in India, income is taxed.

The issue of transfer pricing - transaction prices between separate entities of large firms - has generated much heat in India involving MNCs operating here such as Vodafone, Shell, WNS and Nokia.

Absence of safe harbour rules with regard to capital transactions between group companies have led to a lot of transfer pricing disputes and there has been demand from the industry for more clarity in this regard. "But now, the judiciary has given an interpretation.

They have accepted the contention of the industry that transfer of shares is a transfer of capital and not income. So, if this judgment prevails, of course, the Government is free to go to the superior court that is, the Supreme Court, but whatever the Supreme Court says will be final," Mukherjee said.

The Bombay High Court last week ruled that Vodafone is not liable to pay an income tax demand of Rs 3,200 crore (Rs 32 billion) in a case relating to transfer pricing.

The order in favour of Vodafone is being considered significant because some domestic companies too are involved in similar transfer pricing cases.

The President said India is providing a "stable tax regime" but tax disputes are nothing new in India as is the case in any democratic country in the world. When asked about Nokia, he said ultimately, the final decision is through arbitration by the independent judiciary and everybody accepts that.

"I think if this judgement prevails then definitely around 26 companies - multinational companies and big Indian companies, are going to be benefited by this judgment including Nokia," he said. Mukherjee said all political parties have accepted the basic principle that liberalisation of economy, decontrol, deregulation and exposure to foreign investment is needed.

"Thirty years ago, contribution of international trade to our GDP was insignificant. But today, international trade accounts for more than 30 per cent of our GDP. Of course, it is broadly calculated in the service sector. And, this is the outcome of the policy changes which have taken place," he said.