Indian court allows Nokia to include Chennai factory, frozen in tax dispute, in Microsoft sale

MUMBAI, India – An Indian court ruled Thursday that Nokia Corp. may transfer a factory seized by tax authorities to Microsoft as part of the Finnish communications giant’s 5.4 billion euro ($7.2 billion) sale of its devices and services unit.

The ruling by the Delhi High Court coincided with a deadline after which Nokia had said the factory in the southeastern city of Chennai would be excluded from the Microsoft deal and might have to close. At least 8,000 workers are employed at the factory, which makes basic phone handsets, and some 25,000 subcontractors are dependent on its business, according to court filings.

The case has been closely watched because several other international corporations are embroiled in tax disputes with the Indian government, including Vodafone, Shell and IBM.

Thursday’s ruling did not resolve Nokia’s overall tax dispute. The court wrote in its ruling that “there is partial truth in the allegations made by both sides against each other” and noted that the case was likely to be protracted and end up before the country’s Supreme Court.

The ruling required Nokia to put at least 22.5 billion rupees ($369 million) in escrow as collateral against the pending back-tax dispute.

Nokia India spokeswoman Poonam Kaul said the company would comply with the decision but added that there were still other unspecified Indian statutory clearances needed before the transfer to Microsoft can be finalized.

“Nokia repeats its call for the Indian government to work with urgency to facilitate the other approvals needed for the transfer and secure employment for the tens of thousands of employees involved,” Kaul said, adding that the company still expects the deal with Microsoft to close in the first quarter of 2014.

Indian authorities earlier this year raided the Chennai factory and accused Nokia of evading a 10 per cent tax on royalties of software downloads from its parent company, and levied a 20 billion rupee ($365 million) fine.

Nokia, which has invested some $330 million in Chennai since arriving in India 17 years ago, has said it was exempt under a taxation agreement between Finland and India.