The Telegraph
Saturday , March 15 , 2014
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Court blow to Nokia

New Delhi, March 14 (Agencies): The Supreme Court today ordered Nokia to give a Rs 3,500-crore guarantee before it transfers its Chennai plant and other assets in the country to Microsoft Corp.

The ruling upheld a lower court verdict over the plant in Chennai, which is the subject of a tax dispute, and had been challenged by the Finnish company.

Nokia said it was disappointed by today’s decision. “The company believes its offer to the Indian tax department is fair for all sides, allowing its employees and assets to be transferred to Microsoft while providing the necessary financial guarantees,” the company said in a statement.

Nokia’s case is one of the several high-profile tax disputes involving foreign companies in India. Vodafone, IBM and Royal Dutch Shell are among the foreign companies contesting local tax claims.

Nokia, which is selling its mobile phone business to Microsoft in a 5.4-billion-euro deal, last month appealed to the apex court, saying the Delhi high court had imposed new conditions over the transfer after previously lifting a freeze.

The deal, which will allow Nokia to shift its focus to network equipment, is expected to close by the end of this month and Nokia had been keen on a ruling before that.

The Finnish major had agreed to the Delhi high court’s order to set aside Rs 2,250 crore in an escrow account while it fights the tax authority’s claims in court. But it was also asked to give a guarantee of Rs 3,500 crore, which the company had said would restrict its ability to contest the tax claims locally and internationally.

The Chennai plant is one of Nokia’s biggest factories, employing 8,000 people. If the plant is not allowed to be transferred, Nokia can run it as a contractor for Microsoft but not for long, the Finnish company had earlier said in court hearings.

In March last year, Nokia was served Rs 2,080-crore tax demand covering five fiscal years from 2006-07 for violating withholding tax norms while making royalty payments to the parent company.

If Nokia loses the legal battle, its liability could total Rs 21,000 crore, which includes penalties and interest, a lawyer representing the tax office had said in December.