Nokia wins reprieve in India, but still faces potentially huge tax bill

Nokia this week overcame a potential hurdle to the closure of the €5.4 billion ($7.4 billion) deal to sell its devices and services unit to Microsoft, but the Finnish company could still face an Indian tax bill that reports now say could rise to as much as 210 billion rupees (€2.46 billion or $3.4 billion), if it loses the ongoing legal battle.

Reuters reported that Nokia won an appeal to release its factory in Chennai, which had been seized by authorities as part of the ongoing tax dispute between Nokia and the Indian tax department. Nokia wanted the asset freeze to be lifted by Dec. 12 to enable the transfer of ownership to Microsoft. It still has to deposit 22.50 billion rupees ($362 million) in an escrow account as a condition for lifting the freeze and allowing the factory to be transferred to the U.S. company, Reuters added.

Nokia's Chennai plan was established in 2006 and is one of the company's biggest facilities.

"There was the question, if Nokia couldn't sell this factory what should it do? Should they sell it later or should they be a subcontractor? This was some kind of uncertainty," Pohjola Markets analyst Hannu Rauhala told Reuters. "But of course, we still don't know how much Nokia has to pay."

Nevertheless, the release of the factory does not detract from the fact that Nokia could face an Indian tax bill of as much as $3.4 billion, including penalties for non-payment of tax and interest as authorities there continue to pursue what they deem to be unpaid taxes from foreign companies.

Mohan Parasaran, the government lawyer for the case, told Bloomberg that India's Income Tax Department may add penalties and interest to its current 20.8 billion-rupee demand should a New Delhi Court order Nokia's local unit to pay taxes on royalties to its parent company. Nokia told Bloomberg that the claims are without merit.

Vodafone is another European telecoms company involved in a tax dispute in India. The operator is also seeking to raise its stake in Vodafone India from 64 per cent to 100 per cent. It has been reported that Vodafone plans to invest as much as $2 billion (€1.45 billion) in the country.

For more:
- see this Reuters article
- see this Bloomberg article

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