Nokia fights multi-billion dollar tax bill in India

That splendid organ, The Times of India newspaper, reports that the national income tax department "has informed the Delhi High Court that Nokia India and its parent company, Nokia Corporation, have a tax liability to the Indian authorities of 21,153 crores of rupees". That's getting on for three and a half billion bucks due "from liabilities arising out of unpaid charges and penalties since 2006".

Nokia has a big manufacturing facility in the Indian city of Chennai (Madras, as was) and its transfer to Microsoft's mighty list of corporate assets is a condition of its $7.2 billion acquisition of the Finnish company.

Before it collapsed Nokia had seemed to be content to sit back, do nothing and let the entire matter slide into the huge morass that is the Indian tax and legal system not to to be seen again until 2050 at the earliest. However, circumstances have changed and with the Microsoft deal dominating everything that Nokia now does, it was decided that the Indian authorities should be approached and asked to lift the seizure and freezure of Nokia assets.

As a sweetener Nokia also offered to pay the Indian tax authorities a sum of 3,000 crores of rupees (about $490 million) in full and final settlement of the dispute. Unsurprisingly, the Indians were somewhat nettled by this (in much the same way the British government was when the coffee shop chain Starbucks decided to invent its own UK tax regime and determine its own miniscule liabilities on mammoth earnings) dug the papers out of the bog and then sprang into action like a veritable tiger (or taiga, given that this is Nokia we are talking about).

The reason for the seizure of Nokia assets in India is down to allegations of tax evasion in respect of software royalty payments to Nokia's parent company. Ten per cent of the value of those sums should have been deducted at source and paid to the Indian authorities. Apparently they weren't and now, clucketty-cluck, the chickens are coming home to roost.

Nokia is now saying that if it cannot transfer the Chennai facility (which employs 8,000 people) to Microsoft as it had planned to do then it will have to sell it elsewhere and job losses will surely result.

However, the Indian authorities are playing hardball too and have told Nokia that no matter to whom it eventually sells the plant, due tax will still be due and will be collected - even it requires another langthy and expensive court case.

The point is, of coure, that the Chennai factory and other facilities are part and parcel of Microsoft's acquisition of Nokia, and whilst it would not be a deal breaker were the plant not to be included in the $7.2 billion buy-out, it would give Microsoft even more of a hammer lock on the negotiations.

Nokia is demanding that, by tomorrow, the High Court in Delhi rule in its favour so tht it can transfer the Chennai facility to Microsoft. Will, it? Won't it? What a cliff-hanger!