Nokia India officials and employees heaved a sigh of relief as the Delhi high court today accepted the appeal company made to defreeze its handset manufacturing assets based out of its Chennai plant - which manufactures its range of low cost handsets. The court directed Nokia India to deposit Rs 2,250 crore ($367.17 mn) as an interim payment in an escrow account within a month's time.
The Nokia plant in Chennai was seized by government officials on charges of outstanding tax dues. It all started in March of 2013, when the income tax department served the Finnish major with a hefty pending tax bill amounting to $ 340 million spanning five fiscal years starting from FY 2007 for its operations out of India.
Subsequently the authorities froze all Nokia India mobile handset assets and when Microsoft acquired Nokia in September 2013 for $ 7.2 bn and set Q1 2014 as the closure of the deal, things got tricky. With its key manufacturing assets frozen, and pending tax and penalties exceeding the original tax amount and some sources claiming that to be as high as $ 3.4 bn- it was kind of a quagmire situation with Nokia appealing the government to decouple the tax issue and seizure of assets and pleaded that its manufacturing assets be released by December 12 as a frozen asset cannot be merged with its new owner- Microsoft. And moreover, if not for the interim relief, Nokia would be forced to close its factory and wind up its Indian operations, as if Chennai plant is not part of the Microsoft deal, the factory as a standalone entity would have become a liability. While it can mull over options like contract manufacturing to Microsoft in that case , but for Microsoft it can very will go for low cost factories in China or Brazil for that matter.
A Reuters report quoting a tax lawyer said: "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."
The Nokia tax evasion case is the latest in the list of MNCs that has come under the dock of the Indian tax department, it may be recalled earlier companies like Vodafone, LG Electronics, Royal Dutch Shell and IBM were served hefty tax default notices.
Coming to this latest Nokia development, it is to be seen how this progresses from here. While this is just an interim relief and clears the deck for the Chennai plant to be integrated with Microsoft and at the same time what would be the final tax liability that will be served ultimately is to be seen. If it runs into billions, then it will have major ramifications in terms of Microsoft integrating Nokia India's assets into its fold.
The court has indicated that Nokia in concert with tax department can amicable solve this issue and the ultimate closure of this issue will indeed serves as a benchmark of all MNCs operating out of India.
Nokia's HQ in Finland is yet to officially react to this interim verdict and an official statement is soon expected on the same.