Nokia, BMW, IBM, Vodafone, and Royal Dutch Shell are just a few of the multinational companies caught up in tax battles with the Indian government. A few days ago we learned that an Indian Supreme Court ruled that Nokia must deposit $571 million into an escrow account before it can transfer a key manufacturing plant to Microsoft.
As you know, Microsoft is trying to finalize its deal to acquire Nokia’s phone unit for $7.3 billion. Microsoft and Nokia hope to finish the deal before the month ends. However, the Indian government is making things a little tricky for the two companies.
The Chennai factory is a key manufacturing asset for Nokia and would become Microsoft’s property under the current deal. However, according to a senior Indian tax official, that Nokia factory may not got to Microsoft after all.
Nokia and Microsoft may need to renegotiate the $7.3 billion acquisition deal because of the Chennai factory. Sources in the Indian courts tell local newspapers that the plant can’t become part of the Microsoft deal because of the ruling from the Supreme Court. Nokia Finland, parent company to Nokia India, doesn’t want to get involved. A quote from an Indian tax official:
“Nokia Finland has made it clear to us that it does not want to get involved. They have also made it amply clear that they want to limit their liability to their assets in India. In such a situation, they have no option but to exclude the Chennai unit from the deal for it to go through within the set time frame."
Nokia is left with a few options. It could run the factory as a contractor on behalf of Microsoft or it could shut the plant down. Which would leave over 8,000 locals out of work. A blow not only to Microsoft, which wouldn’t get a key manufacturing plant, but to those who rely on the factory for their livelihood.
Nokia has maintained that any developments in India over ongoing tax proceedings won’t affect the timing or the material deal between itself and Microsoft. One way or the other, Nokia and Microsoft are planning on closing the deal in the coming weeks.
Source: The Financial Express