Court lifts Nokia India factory freeze in tax dispute,paves way for Microsoft deal

A court on Thursday accepted Nokia's appeal to release its factory in India.

Written by Reuters | New Delhi | Published: December 12, 2013 3:15:05 pm

Delhi High Court on Thursday accepted an appeal by Nokia to release its factory in India after it was seized by authorities in a tax dispute,removing a hurdle to the sale of the company’s mobile phone business to Microsoft.

The plant in the southern city of Chennai is one of Nokia’s biggest phone-making factories. Nokia had appealed the seizure and was scrambling to end the dispute ahead of the closure of the 5.4 billion euro ($7.4 billion) Microsoft deal.

The Delhi High Court asked the Finnish company to deposit 22.50 billion rupees ($367.17 million) in an escrow account as a condition for lifting the freeze and transferring the facility to Microsoft.

The tax demand case will continue separately. If Nokia loses it may have to pay as much as $3.4 billion,which includes penalties for non-payment of tax and interest,according to a tax department lawyer.

Nokia’s case is one of several high-profile tax disputes involving foreign companies in India,which has stepped up its pursuit of claims against such firms as it seeks to rein in its budget deficit.

Other foreign firms recently involved in tax disputes in India include IBM,Royal Dutch Shell,Vodafone Plc and LG Electronics Inc.

“It’s a very fair and balanced order,” said N.P. Sahni,a lawyer for the tax department. “It substantially protects the interest of the revenue (department) and also enables Nokia to go ahead with its proposed deal with Microsoft.”

A spokesman for Nokia in Helsinki said the company would comment after analysing the ruling.

In March,Nokia was served with a tax demand for about 20.8 billion rupees covering five fiscal years starting from 2006-07,according to a notice on the Delhi High Court website.

Including the anticipated liability,or the tax bill for the years that have not been assessed by the authorities,the total liability could be roughly 75 billion rupees,Mohan Parasaran,a lawyer representing the tax department,said on Wednesday.

If Nokia loses the legal battle,its liability could total 210 billion rupees,which includes penalties and interest,Parasaran said. He declined to give additional details.

Nokia,which wanted the asset freeze to be lifted by Dec. 12 to enable it to transfer the plant to Microsoft,has said it had not been served with any claim beyond the original 20.8 billion rupees notice.

Read full reaction from Nokia IMEA by Poonam Kaul,Director-Communications:

Nokia acknowledges the decision by the Delhi High Court today to release Nokia’s Indian assets,including its Chennai facility,for the planned transfer to Microsoft.

Our current understanding is that this decision allows for the transfer of the assets. However,Nokia has been asked to meet a number of conditions in the ruling,and still needs to provide the authorities with additional documentation. Nokia expects these conditions to be in line with international treaties and practices.

The company will now start to prepare for the planned transfer of the assets,but notes that there are still a number of statutory clearances that remain before the assets can transfer. 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.

Nokia continues to expect the transaction with Microsoft to close in the first quarter of 2014.

Nokia will not comment further on the matter.

HC defreezes Nokia’s assets; paves way for sale to Microsoft

(PTI) In a major relief to handset maker Nokia,the Delhi High Court today defreezed the assets of the Finnish firm India,including in Chennai,paving the way for their sale to Microsoft.

The court,however,imposed certain conditions on Nokia India and its parent firm Nokia Corporation Finland.

Nokia had pleaded before the high court for a direction to the Income Tax department for lifting of the stay on transfer of assets,including the Chennai manufacturing plant,in view of its USD 7.2 billion global deal with Microsoft.

A bench of justices Sanjiv Khanna and Sanjeev Sachdeva said “we permit and allow sale of assets by Nokia India to Microsoft/Microsoft International.”

The bench at the same time asked Nokia India and Nokia Corporation(Corp) to fulfil certain conditions.

“Nokia Finland will be bound by the statement that they shall be jointly liable and shall pay tax demand determined and payable under Section 201/201(1A),interest and penalty thereon.

“Nokia Finland shall be liable to pay taxes including penalty and interest due and payable by them as determined under the Income Tax Act,” the bench said.

Directing Nokia to deposit a minimum of Rs 2,250 crore in an escrow account,the court said “details of which will be furnished to the IT department within one month of the agreement with Microsoft/Microsoft International.

“The amount of deposit will go up or increase upon higher consideration being received from Microsoft as per valuation report.”

The court also clarified saying “Rs 2250 crore or the higher amount,which will be deposited in the escrow account,at the option of the respondents may not be adjusted or appropriated against tax demands including interest and penalty relating to TDS/order under Section 201/201(1A) or tax demands determined and payable by Nokia Finland….”

The court further said that in case of an adverse assessment or re-assessment order or tax demand being created against Nokia India under I-T Act,the demand will be paid from the escrow account.

“… subject to stay order,if any,against recovery of the said demand from appellate authority or Indian courts and in case Nokia India pays any amount,or is appropriated from the escrow account,and Nokia India subsequently succeeds,the amount will be refunded with interest in accordance with the provisions of the Act.

“Interest earned on the escrow account will be also included in the amount payable,” the bench said.

The court asked Nokia Corp to give an undertaking to the department which the bench will treat as a guarantee to it.

“Nokia Finland,in addition to the undertaking or letter of guarantee quoted above,will file another letter in the form of guarantee/undertaking incorporating the terms and conditions mentioned herein and file the said letter/undertaking with the income tax authorities….

“This will be treated as undertaking to the court,” the bench said adding “the letter/undertaking will clearly state that Nokia Finland will abide by clauses… and will cooperate in payment of tax dues payable… or dues payable by Nokia Finland.”

The court also made it clear that Nokia Finland will not be liable to pay the tax dues of Nokia India,except to the extent permissible and recoverable under the provisions of the Income Tax Act.

“…. However,in case the total amount due and payable by Nokia Finland … is less than Rs 3,500 crore and Nokia India is unable to pay dues… Nokia Finland will be liable to pay tax dues of Nokia India upto but,not exceeding Rs 3500 crore.

“The amount has been fixed as dividend of Rs 3,500 crore stands paid by Nokia India to Nokia Finland….,” it added.

The bench said Microsoft will not be liable to pay tax dues of Nokia India and Nokia Finland,except when any amount due and payable as per the provisions of the Act.

The court also said Nokia will continue and pay Rs 700 crore in instalments following June 21,2013 order and this amount has no co-relation with Rs 2250 crores or higher amount,which will be deposited in the escrow account.

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