Nokia suffers fresh blow in $1.1bn Indian tax dispute
By James Crabtree in Mumbai
February 12, 2014 12:01 pm
ft.com
Nokia has suffered a big reversal in its tax row with India’s government, stalling the transfer of its assets in the country to Microsoft and prompting the Finnish group to launch a supreme court appeal.
The reversal threatens the future of Nokia’s main manufacturing facility in the southern city of Chennai, which employs around 30,000 people. That factory was due to be transferred to Microsoft as part of Nokia’s €5.4bn phone business sale.
The news is the second big tax blow to foreign companies in India in just one day, following news of the collapse of talks between UK-based Vodafone and the Indian government over a long-running $2.6bn tax dispute.
Nokia and Vodafone are only two in a long line of global businesses to struggle with India’s revenue services, including Anglo-Dutch oil business Shell and US-based technology group IBM, in a series of disputes that has badly damaged the reputation of Asia’s third-largest economy as a friend location for foreign investment.
In December, Nokia appeared to win an important reprieve in the group’s $1.1bn tax dispute, when a court in New Delhi ruled that company could transfer the Chennai factory.
However, last week another court ruling imposed extra conditions on the Finnish company, which it said were “unacceptable”, prompting an appeal to India’s highest court.
“Under the new terms of the court we will not now be in a position to transfer our assets, and that would put the continuity of our operations and their 30,000 employees in serious jeopardy,” Nokia said.
“We are now in the unfortunate situation that unless we win at the supreme court, or unless tax authorities and the finance ministry change their mind, the transfer cannot go ahead for now.”
Nokia chairman Risto Siilasmaa was in New Delhi on Wednesday meeting figures from India’s government and tax service, arguing for a change of heart on the issue, the company said.
Nokia has stressed that the asset transfer does not materially affect the broader deal with Microsoft, but said the news would send a further negative signal to international businesses worried about investing in India.
“It seems that working with the tax authorities here in India can be very hard and unpredictable, which is clearly not good for businesses, given we are looking for clarity and predictability,” Nokia said.
Under the new terms of the court we will not now be in a position to transfer our assets, and that would put the continuity of our operations and their 30,000 employees in serious jeopardy
Nokia added in a statement that it “cannot commit to these conditions and waive its legal right to defend itself after undergoing more than a year of aggressive and arbitrary actions by the Indian tax authorities”.
“The company believes these actions run counter to domestic laws of India, international treaties and practices including the tax and investment agreements between India and Finland.”
The Finnish group’s troubles began last January, with a raid on the Chennai factory. India’s tax authorities then issued an order freezing all physical assets at the plant.
At the time, Nokia described the actions of the tax inspectors as “excessive, unacceptable and inconsistent”.
The latest twist follows a ruling last week in which an Indian court asked Nokia for an open-ended guarantee that the company would meet any future tax claims relating to the dispute.
Having studied the ruling, Nokia says the terms would stop the group defending itself against any future claims, a step it is unwilling to take. Nokia’s original dispute related to tax allegedly due on payments by the group’s Indian subsidiary to its Finnish parent. |
