Nokia’s manufacturing plant in Chennai, India will probably be taken out of the deal with Microsoft

Nokia’s manufacturing plant in Chennai, India will probably be taken out of the deal with Microsoft
Nokia is running out of time to deal with its tax problems in India, as there appears to be no progress toward resolving the age old issue of money.

The Indian government has been placing condition upon condition in order to give the go-ahead for Nokia to transfer its facility to Microsoft, first paying ₹7 billion ($116 million) to free up the Chennai plant from government seizure.

The government has since demanded hundreds of millions of dollars to be held in escrow accounts as guarantees against future taxes that might be owed. The local government has levied its own tax bill on Nokia India as well. Nokia’s appeals in court have not gone in the company’s favor, and it is complicating the deal for Microsoft to buy Nokia Devices and Services.

Both Nokia and Microsoft have said that the issues in India were not going to slow down the acquisition, though the deal was pushed back to April from a planned date in March. At this point, it looks as though Nokia has no other option than to leave the plant out of the deal for now.

The plant at Chennai directly employs 8,000 people and companies that supply the facility with goods and services employ another 22,000 people. Nokia recently offered an early-out option for employees at Chennai, an indicator that operations will be scaled back regardless.

If the dispute is not resolved, it is a very real possibility that Nokia might choose the close the plant. In the meantime, taking the plant out of the deal with Microsoft will work, but will shrink the size of the $7.2 billion acquisition by as much as $1 billion.

Still, once Nokia and Microsoft seal the deal, in whatever form, ostensibly, Microsoft will have control over the plant, since production there would be solely for Microsoft. Because of the tax issue, Nokia is not in a position to sell the plant to anyone anyway.

Deputy CEO at the consultant firm KPMG India, Dinesh Kanabar noted that if the deal closes without the Chennai plant, it will be a signal to international investors that India is not the place to do business anymore, “It will be a pity if the global deal happens leaving India out of its ambit. It will reinforce the perception in the minds of the international investing community that India has an aggressive tax jurisdiction where it is difficult to do business.”

source: Economic Times

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23 Comments

1. ScottSchneider

Posts: 336; Member since: Dec 06, 2011

I know this would happen. Nokia moved most of their operation to Vietnam and Guangdong starting last year.. And that simply meant they are dropping operations in India as well as ditching all employees related to it. No Government will allow any company to come to their space and not pay the taxes that are supposed to be paid. If you dont pay your taxes you get to pay it later with a penalty. There is never a hole for anyone to escape... With this Tax suit., LG, IBM, Vodafone, Shell follow Nokia for not paying their taxes with everyone grossing around $1billion to $2 billion in unpaid taxes...

10. UrbanPhantom

Posts: 949; Member since: Oct 30, 2012

The Indian government is corrupt: as such, it's not possible to know who's in the wrong at this point. They are demanding a huge ransom from Nokia in order to steal part of the money being paid out by Microsoft. It's highly questionable if the Indian government is legitimately entitled to anything, let alone the staggering amount they have demanded in the form of "back taxes". Unfortunately, it would seem that India is not capable of hosting the operations of foreign corporations without demanding irregular levies or bribe money. It looks to me that India is basically closed for business...

11. ScottSchneider

Posts: 336; Member since: Dec 06, 2011

It's not the Indian Government involved here in this. IT's the Tax Deartment. & FYI-I have been there... I know...

15. UrbanPhantom

Posts: 949; Member since: Oct 30, 2012

The tax department is part of the Indian government; and how can you determine who is being truthful and who is lying? The fact is that developing world nations are typically corrupt, and everybody is on the take. This includes the highest politicans to the lowest cop - everybody is taking bribes, and trying to trick other people out of their money. India is certainly not China, and is far more corrupt and prone to acts of extortion against whomever they can get to pay. Nokia's potential money bag from Microsoft is a tasty target, and India simply wants to take a bite and swallow their share of the proceeds... I am not suggesting that all of these corporations are innocent, but it is possible that India's demands are excessive, and their claims sometimes without merit. I guess the WTO can decide if they are acting in an appropriate manner or not. We'll find out in about tens year time (yawn).

16. ScottSchneider

Posts: 336; Member since: Dec 06, 2011

TEven though the Tax system is part of the Indian Government, the Government will not be involved directly as it will scare away other OEM's who are in India and who tries to make business in India. And like you are saying that these companies are not innocent., but what they did was not pay taxes that are liable to them. There is a subsidy for Nokia to evade taxes only if they import from India. That is why they send all mobiles from India to FInland or to China. But what they did is not pay tax for something they are entitled. and now they are supposed to pay the Tax with the Penalty for all 6 -7 years they Imported mobiles to the parent company in finland which comes to around $3 billion. The Unpaid Tax is the same., Whats hugh $$$ is the penalty... You think it is extorsion, I think they deserve it... You say Poor Nokia., I say Poor us...

19. elitewolverine

Posts: 5192; Member since: Oct 28, 2013

The tax penalty is for FUTURE taxes, they are making them pay taxes on ESTIMATIONS that their tax bill will be. So no it is not OWED. India is corrupt making people pay taxes for future estimated earnings.

27. jroc74

Posts: 6023; Member since: Dec 30, 2010

"If you dont pay your taxes you get to pay it later with a penalty." Yup...I have learned about this the hard way over the years....it might take a few years for the IRS to catch up with you in the US....but they do eventually. And I'm not talking about thousands owed...but hundreds...they want that money.

28. elitewolverine

Posts: 5192; Member since: Oct 28, 2013

Difference yet again for penalty and 'estimated taxes'. When you are paying a penalty, you are paying the owed amount, plus a percentage, for the penalty. This is on top of the penalty. Once more see how Vodafone got the bone of the tax 'laws' in which the supreme court ruled in their favor, the government changed the law, tried to go at them again now that the law was 'backdated'.

2. AfterShock

Posts: 4147; Member since: Nov 02, 2012

I wonder how much of this was under control of Elop? No ship should go down without her captain!

5. shuaibhere

Posts: 1986; Member since: Jul 07, 2012

This another plan of elop lower the value of company...

23. jove39

Posts: 2147; Member since: Oct 18, 2011

Seems like it was planned...how did tax officials wake up when ms decided to dump $7B in nokia!!!

24. elitewolverine

Posts: 5192; Member since: Oct 28, 2013

especially after they have been regularly audited since 06 of all things.

6. NokiaFTW

Posts: 2072; Member since: Oct 24, 2012

The government should really stop with this looting of money from MNCs. The UPA government sucks. Hope the new government in the elections will be better. Leaving 30k people unemployed cannot be affordable for the govt and the country. And I agree with Mr. Dinesh Kanabar. India has worked hard to reach where it has and removing doubts from international companies minds that India is not a good place to do business. This dispute will however reinforce the doubts in their minds. The Indian economy isn't performing well and the govt cannot afford to let this dispute go further.

7. shuaibhere

Posts: 1986; Member since: Jul 07, 2012

Don't support your beloved company blindly......if they do business they should pay tax.... If not this will send wrong message that anyone can come and do business in india without rules... If they are not willing to come let it be . Open door for corporates in gujarat has resulted in suicide if 100 farmers... Farmers are more important to us than corparates...

12. NokiaFTW

Posts: 2072; Member since: Oct 24, 2012

I'm not supporting anyone blindly here. I'm an Indian and I know the current situation of my country and so do you. Nokia must pay up their taxes, but the govt are reluctant to even ensure that those workers don't lose their jobs. There can definitely be another way out in this dispute but the govt must really not pressurize MNCs to pay hefty load of taxes. This has been the case, hence the slowdown of the growth of the economy.

20. elitewolverine

Posts: 5192; Member since: Oct 28, 2013

Future taxes is not the same as taxes that need to be paid. want to know how blindly you are defending the indian government. Nokia has been audited since 06, and ask Vodafone how India literally changed its laws so it could tax Vodafone after the Indians supreme court of India ruled in its favor... http://blogs.wsj.com/corporate-intelligence/2014/03/21/doing-big-business-in-india-beware-the-tax-man/

14. Antonyjoseph

Posts: 217; Member since: Apr 06, 2013

Nokia knows that if they wait for a couple of months, they can work out some compromise with the new government which will take over after the elections. I hope it happens and they arrive at a mutually acceptable one time settlement. it wont be easy. Being an Indian, I know how the tax authorities work there. They are very stringent (and mostly accurate) in their interpretation of the tax laws and sometimes even governments are reluctant to interfere.

17. boosook

Posts: 1442; Member since: Nov 19, 2012

So a country where the government asks to pay taxes that are due is "an aggressive tax jurisdiction where it is difficult to do business"?

21. elitewolverine

Posts: 5192; Member since: Oct 28, 2013

If you were not stuck on hating all but android. You would KNOW that it is not just about taxes due, but FUTURE estimated taxes that have not even been produced/made/due yet. Also Nokia has been audited since 06, ask Vodafone how corrupt the tax system is. http://blogs.wsj.com/corporate-intelligence/2014/03/21/doing-big-business-in-india-beware-the-tax-man/

18. Altair

Posts: 367; Member since: Feb 02, 2012

The big question is, why India goverment does see this? Is it because they are greedy and only operate with a short timetable vision? Once they lose international investors, it will be VERY hard to get them back, and in most cases very expensive too. Indian people should let them know, that this kind of act is stupid.

26. corporateJP

Posts: 2458; Member since: Nov 28, 2009

Stupid government, way to sh*t on your people. Right or wrong, there's still 30,000 jobs on the line. And what the Indian government is asking for out of Nokia is excessive, taxes owed or not. I hope India has a great unemployment plan, because I feel bad for all those people. Been there, done that...

* Some comments have been hidden, because they don't meet the discussions rules.

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