Nokia’s Tax Troubles In India Could Hinder Microsoft’s Takeover

Microsoft’s acquisition of Nokia’s Devices and Services business has run into some difficulties, after the Indian tax authorities seized the Finnish manufacturer’s assets, including one of its largest factories.

According to the Times of India, the tax man is demanding a total of 210 billion rupees (£2.08 billion) in unpaid taxes and penalties going as far back as 2006, threatening to recover the money from the value of the plant, based in Chennai.

Nokia disputes the tax bill, and argues that the factory has no value unless it is sold to Microsoft. The fate of the company’s Indian assets will be decided at the Delhi High Court hearing on Thursday.

The £4.6 billion deal between Nokia and Microsoft has already passed the scrutiny of Indian competition regulators, as well as those in the US and EU.

Trouble with numbers

The tax department told the High Court that due to confusion in tax regulations around special economic zones, Nokia now owes the state approximately £2.08 billion, including penalties for the last seven years, reports Times of India. That’s almost half of what its deal with Microsoft is worth.

However, the numbers quoted by other sources vary, and Nokia says it hasn’t received any tax bill other than the £206.7 million it was instructed to pay for the last five years.

“In recent months we have seen and read about many claims from the tax authorities,” said a statement from the company issued on Tuesday. “We feel they are without merit and will defend ourselves vigorously in court.”

Nokia had previously offered to pay €270 million as a deposit in order to unfreeze its assets, but the offer was turned down by the tax authorities.

Later, the company issued a thinly veiled threat, saying that if the sale of its Indian unit in Chennai does not happen, it will wind up its operations in India over a period of 12 months and the remaining assets will have little or no value.

Microsoft had agreed to buy Nokia, its main Windows Phone partner, in the beginning of September. The shareholders approved the deal at an extraordinary general meeting in Helsinki last month, marking the end of the Finnish firm’s 30 year association with mobile phone manufacturing. The transaction is expected to close in the first quarter of 2014.

While this incident is unlikely to stop the sale, it makes matters more complicated for Nokia, which had recently reported losses for its Devices and Services business despite the success of the Lumia range of smartphones.

What do you know about Nokia? Take our quiz!