India’s Income Tax Department is looking at receiving $3.4 billion from Finnish device vendor Nokia. The alleged amount, which could have impacted the Nokia-Microsoft deal value, includes penalties for non-payment of tax and interest.
According to a notice on the Delhi High Court website, Nokia was served with a tax demand for about 20.8 billion rupees covering five fiscal years starting from 2006-07.
Mohan Parasaran, a lawyer representing the tax department, says that the total liability could be roughly 75 billion rupees including the anticipated liability, or the tax bill for the years that have not been assessed by the authorities. If Nokia loses the legal battle, its liability could total 210 billion rupees, which includes penalties and interest.
Though a Delhi High Court on Thursday asked the IT department to release the manufacturing plant of Nokia in Chennai, which was seized in the $3.4 billion tax dispute, it may not pave way for the smooth completion of the sale of Nokia phone business to Microsoft in the $7.4 billion deal.
Interestingly, the tax dispute and negotiations will continue in India. This means, the deal could face uncertainties.
This is a temporary relief to Nokia because the Microsoft-Nokia deal did not consider the $3.4 billion alleged tax obligation during the timing of the negotiation. If Nokia is unable to convince the tax authorities and the court, it will be a big blow on Nokia (without Nokia business and with NSN). At present, there is less clarity whether Nokia or Microsoft would pay $3.4 billion tax amount, if they lose the appeal.
The inclusion of the Chennai factory is important for both Nokia and Microsoft since the plant in the southern city of Chennai is one of Nokia’s biggest phone-making factories. Nokia had appealed its seizure and was trying to resolve the dispute ahead of the closure of the $7.4 billion Microsoft deal.
Nokia had wanted the asset freeze to be lifted by December 12 to enable the transfer of ownership to Microsoft, Reuters reported.
The Delhi High Court asked the Finnish company to deposit $367.17 million in an escrow account as a condition for lifting the freeze and transferring the facility to Microsoft. An extended asset freeze as a result of the dispute would have blocked Nokia from transferring ownership of the Chennai plant, possibly forcing it to operate as a subcontractor for Microsoft.
