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Microsoft could lose key Nokia manufacturing plant in India

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

  • That's ok. Whatever, Microsoft gets, it should take it and seal the damn deal now. It's dragging way too long.
  • It'd be funny if later it is uncovered that Samsung paid some key folks in India to ensure dominance in that sector. Even funnier if they "happen to buy" that same facility in the near future. But Samsung wouldn't do this right?........right? That would be playing way too dirty......then gain...
  • You guys really need to do the research before commenting.  The reason Nokia will walk is because the court ask them to expose the parent corp to unlimited liability, which is absurd as that factory and the subsidiary that holds it is worth probably 250-300m. India changed the tax law retroactively in 2011 with the specific goal of entrapping Nokia into tax liabilities that never existed before. After the tax law change, they raided Nokia and said...oh look you cheated on your tax for the prior ten years (which Nokia did not as they were in full compliance with the existing laws during those 10 years) lets see with penalties which are 10x the tax amount....hmm that amounts to everything you have. They've used this same trick against Vodafone and other companies, it's just not Nokia...even after Vodafone won at the supreme court, they went back and changed the tax laws (retroactively going back 30 years) a second time to allow them to continue persecuting that business. Nokia needs to shut that factory down now.  The total value of the subsidiary is only 1.7% of nokia's capitalization, Nokia has already lost billions in stock value because of the constant bad headlines from that tax dispute. You cannot negotiate with thieves and thugs, time to walk away.
  • Okay, this actually gives me a new perspective on the entire fiasco.  Cause the 300 million is a hefty amount to miss over any time period.
  • And this is what I call **** logic... The workers in that plant are indian people... they have higher positions in management too... Do you think they didn't let the authority to know about the change in tax rules?... Keep dreaming on your own logics...
  • Idk whether my reply is a correct one... There is also a Samsung plant here in Chennai... Probably its a key plant too...
  • If Microsoft decides to pay that 500 million for Nokia, the 8000 Indians and their families should worship Microsoft. I think that is the best thing they can do. Just pay the stupid "debt". They will win the hearts of many Indians.
    If they close it down the Indian government loses because they won't get any money and 8000 Indians will be out of a job but Microsoft loses too because they lost an important factory. I think Microsoft should just play the good guy in this one. It will be good karma for them. The Indian government will get what they deserve soon enough.
  • Its a difference of about $200mil based on the original ruling from a few months ago and this new one. Then again there were deals in re: taxes already established with Nokia and India. It seems to me like the Indian government is trying to buffer its coffers a bit, take advantage. This might just come down to a matter of principal. If India is, indeed, reneging on what was previously agreed upon, then I could not blame Nokia for excluding the plant in the deal. On a scale as large as we are seeing, the money isn't the issue. MS could easily make up the difference, but what kind of precedent does that set? Leaves the door open for all kinds of future actions. We all know how well it went down for the pirates in Captain Phillips, who were trying to extort money. Unfortunately, 8,000 workers in India might pay the price for this.
  • I would have already shuttered the plant, and told the Indian government, "Play fair, or you've put your own people out of work."
  • +9000 Posted via my "Gift from God" Note 3, my "Blessed" iPad Mini 2, or my "Risen" Asus ROG"
  • Which is why you aren't CEO of a huge company.
  • Are you?   How do you know some CEOs of big companies wouldn't take that course of action?   And, how do you know that Nokia won't end up doing that in the end?    Answer: You don't know the answers to either question, lol. Which is why you aren't the CEO of a huge company.
  • +8000  
  • Actually, this tax fiasco should give you a second thought to continue business there. The government can do it now surely they can do it again in the future.
  • Disagree. Karma isn't a real thing, its silly, magical thinking. MS and Nokia should give the corrupt indian government the middle finger and shut it down. 8000 people out of a job because of more greed may help the citizens realise they need to do something about this.
  • Disagree. Karma is real, at least to me, it is.
  • I see no point of realization for the 8000 workers. Your comment is invalid.
  • +100000000000000000000000000000000000000000000
  • Screw India, take the half bil and build a new plant in a country who will appreciate having work.
  • Nay....don't say screw India, repeat with me - Screw the government. After all...when did politics play nice?
    P.S Karma ain't's kind of superstitious...
  • Is Obama running India too? Sounds like something he would so.
  • India won't require a Obama to ruin it. Government (Congress) is enough (they always are).
  • 100000% agreed
  • India changed the tax law retroactively in 2011 with the specific goal of entrapping Nokia into tax liabilities that never existed before. After the tax law change, they raided Nokia and said...oh look you cheated on your tax for the prior ten years (which Nokia did not as they were in full compliance with the existing laws during those 10 years) lets see with penalties which are 10x the tax amount....hmm that amounts to everything you have. They've used this same trick against Vodafone and other companies, it's just not Nokia...even after Vodafone won at the supreme court, they went back and changed the tax laws (retroactively going back 30 years) a second time to allow them to continue persecuting that business.
  • Close it...
  • Loosing popularity now in India......
  • What's losing popularity in India? Nokia? They are the ones not paying the taxes india's government is demanding
  • There is a lot more to the story, including a general tax agreement between Finland and India that plays a role. I wasn't aware of the other companies in similar situations.  This doesn't look good on the Indian Government right now from the sources I've seen on the issue.
  • Indian courts are only asking to set this amount aside on the esc. account and if Nokia wins the case against the law, money goes back. If not, taxes are claimed.
  • Wrong, the Courts in India are asking Nokia to set aside that amount, and to be liable without appeal on further amounts up to 3 billion dollars. Please research this before posting such statements.
  • I say close it too. I think India is doing this to squeeze money out of Nokia. Threaten them with loosing 8,000 jobs. They'll change their tune in a hurry.
  • Are 8,000 jobs out of 1 billion people really that big of a deal that they'll completely change their minds? Sure, whenever anyone, whether it's 1 or 1,000, loses their job its bad, but are jobs that scarce in India that those people would be worth $571 million?
  • ABSOLUTELY!!!! jobs are extremely scarce. Probably 80 million applied for them 8,000 jobs.
  • exactly. $571 million is way too much for thos crappy 8000 jobs.
  • India is not doin it intentionally they are demanding wat they want, m a fan of nokia hope everything goes fine. End of the day all should be beneficial ..
  • Ummm... If India is "demanding wat they want," then they are "doin it intentionally."    Just sayin'.
  • Let the law take the course of action. You me and almost all shouting here don't know the real issue.
  • Not when sometimes the legal way isn't necessarily 'Functioning' properly.
  • Nokia Finland acted moron past year...and now aloof this year...
    I wish good luck to those 8000 employees!
  • Right, because India's government is innocent in all of this. Posted via my "Gift from God" Note 3, my "Blessed" iPad Mini 2, or my "Risen" Asus ROG"
  • It is simple! The Govt wants to make sure Nokia doesn't wash hands off the case if it loses against the Govt. So they've demanded Nokia move this money into esc account and IF they lose the case, Govt gets the money. However, if Nokia wins the case and they shouldn't rightfully be paying taxes, it will be return to Nokia (who then may or may not be a part of Microsoft to an extent). The Govt. fears laws that will prevent them from getting this tax paid AFTER THE ACQUISITION if it is successful. They are playing their cards right. If Microsoft gets through, they *may* not have to pay any debts as the ownership has changed. This comes from 3 friends who have studied Company Law and International Taxation in India - who work in the same building as me.
  • Fair enough, brother. I'm sure, it won't be too long before we know the outcome of all of this. Posted via my "Gift from God" Note 3, my "Blessed" iPad Mini 2, or my "Risen" Asus ROG"
  • Yes, the Indian government is doing this to protect its own interest. So Nokia should be doing the same thing and protect its own interest by closing down the factory and cut its loses..
  • It's not that easy.
  • It's hard to say who is at fault here. Nokia or the Indian tax authorities. Nokia claims they don't need to pay taxes on software downloads for phones made in India because of a bilateral tax treaty between Finland and India. The Indian tax authorities say otherwise. You still have two players, Nokia and the Indian government, that want to save/make money. Like others have said in the comments, the real losers here are the factory 8,000 workers from Chennai that may not have a job soon.  I don't think any of us know enough about international tax laws to say whether or not Nokia is innocent or trying to make more money. We also can't say whether or not the Indian government is being honest vs. corrupt. It just is what it is. 
  • Look mate...laws are made by governments....i aint supporting Nokia or Indian tax Law.
    All i say is a prayer for those ppl who's livelihood is dependent on the device we play flappy bird on.
    Its surely not a time to play blame shud be closed....the plant shud be contracted so those 8k workers can survive.
  • +720
  • @Sam DJCBS knows.
  • Good one!
  • Lol
  • Oh yes, Mr.-know-it-all.
  • is this $571 million rupees? If so that is only $9,313,000 usd which would be kind of a pittance that isn't even worth all of this static. Any clarification? Edit: Nope that is USD. WTF!!! This is really about taxes for software downloads? How could this possibly ever even come close to gross revenue for that let alone the tax burden.
  • Then it wouldn't be $571m. $ = Dollar
  • But it is next to impossible to see the tax liability to be that high on nokia's app store. Maybe I'm reading this wrong.
  • I don't think you are. This looks like, imo, another case of government greed. Every country has one or more at some time.or another.
  • USD
  • Why use $ sign and say Rupees? And to correct you, its $571 million as in Dollars, not Rupees.
  • Lol....its in USD, and trust me....its not puny...its huge!
  • Seems a bit ridiculously considering you could probably build another two factories in a different country with that money....
  • It is in JPY Yen, so about $5.5MM USD
  • How about bitcoin?
  • It is actually far more. The government wants them to set aside that much, then to give up their rights of appeal up to an amount of more than 3 billion dollars, which is utterly insane. There is not 1 company on this earth that would agree to this extortion.
  • What it seems missed here is the fac that this money is supposed to go in an ESCROW account, not paid to any India agency. When the trial will end if Nokia wins get the money back, if guilty the Indian authorities will get it. It is like paying a bond to get out of jail waiting for the trial.
  • But as you say in the article, Nokia isn't the only company India is going after. You have BMW, IBM, etc also being sued. I doubt all these companies are tax dodgers. It sounds like the local taxing authorities are stretching the tax laws to get some extra income that they can then put in their own pockets.
  • Look, Nokia has nothing to lose here and its Indian Govt which has everything to lose. Nokia can just sell the plant just shut it down and they can build up a new plant elsewhere like Phillipines or China for quater the amount. The Only reason this plant existed was for manufacturing feature phones, which are irrelevent to Microsoft anyway, considering MS is only interested in Lumia line of Nokia, Optics division and marketing.
  • ill feel bad for those workers who make a living from that plant :/
  • This. They're the bystanders, in all of this. Posted via the WPC App for Android!
  • My quote is from the WPC app for windows phone?
  • Now I'm commenting via the WPC app for ios
  • Lol. Trust me, I hate that signature and just changed it 30 minutes ago, lol. Posted via my "Gift from God" Note 3, my "Blessed" iPad Mini 2, or my "Risen" Asus ROG"
  • it does suck losing a job sure we want this to go though already but it doesnt seem nice that people are lossing thier jobs over it
  • I agree.
  • Sahib I am still felling bad for the missing plane :p
  • i already said " alliens' :P
  • :p
  • Shut it down and blame the Supreme Court of India :)
  • Now those golden days of nokia in India has gone.....,
  • it's a great loss but it's still up to Nokia india to decide what to do with the factory , they can still save it 
  • Lets, see what Nokia decides to do
  • Not really. Actually I can bet that noone would care about those workers.
  • I just love Sam, he knows that this article will raise acid comments again. :D
  • Sam is a genius
  • You seem overly sensitive.
  • Ha. It's going to be a divisive topic. I just hope cooler heads prevail... 
  • Boy will you be disappointed by my comment... Want me to go write another, more heated, one? ;P
  • I have a better idea... why don't you put your name down in that pre-order list for the X in China.
  • Is he supposed to ignore the story?
    Your comment is worth less than "first!"
  • It is also serious blow to Microsoft market as India in one of the growing markets for WP.
  • Ye GROWING MARKET with shutting down,some app developers not ready to launch their app in windows phone ,initial stage people had shown great interest towards L520,but now peoples gets borred ,because of absence of mature file manager to handle files,,,,every day 24x7 carry laptop for getting work done from this phone is kind of time consuming process ,,,,
  • Why do people get bored without a mature file manager? "Ah, so nice to be off work, I can't wait to go home and open up windows explorer and just move files around for a few hours!"
  • People need to be able to move their pr0n they've downloaded to a "hidden" folder.
  • Why not just hide the folder? Lol Posted via my "Gift from God" Note 3, my "Blessed" iPad Mini 2, or my "Risen" Asus ROG"
  • Not always related to downloaded prOn ,,,,but sometimes confidential documents is also a matter
  • You win the Internets today for that one.
  • +1 lol Posted via my "Gift from God" Note 3, my "Blessed" iPad Mini 2, or my "Risen" Asus ROG"
  • Why people has to wait for go to home and connect to explorer,,,,ah what to do if one wants urgently move files on the way when he or she is travelling?,,,ah why still want to depends on others(pc/laptops) ah,,,
  • Please trust me when I say, that the average consumer has no interest in a 'mature file manager'. Even with millions of downloads for these on Android, that's still a tiny fraction of the total Android install base.
  • Hell.. I'm more than an average consumer and I don't care about one.. If I need to move files.. I just plug it in to my computer...
  • Hell.....because average people have enough free time for plug in to pc and all that,busy schedule people don't have that much time
  • LOL +1.
  • You are the guys who need to download "Pocket File Manager". It is the only full functional file manager available out there for WP right now.
  • That really sucks. The Indian government definitely doesn't have the people's best interest in mind. Blatant extortion at its finest. Posted via the WPC App for Android!
  • And you have some information that rest of us don't...
  • I'm sorry, this comment isn't worth a serious reply. Blind patriotism is foolish. Period. Posted via my "Gift from God" Note 3, my "Blessed" iPad Mini 2, or my "Risen" Asus ROG"
  • The government wants to impose taxes AFTER THE PHONES ARE MADE, SHIPPED AND SOLD. There is no legal argument for taxing app purchases in the way India is trying to.
    The taxes aren't owed. This is extortion.
    Let the 8000 starve before negotiating with 'terrorists' even when they're just lame, backwards governments.
  • This. I'm no law professional, but I'm pretty sure it's not common practice to tax a good or service after its sold or performed. I see this as a money grab. And, it sucks, because 8000 people are caught in the middle of this, with no immediate course of action. Posted via my "Gift from God" Note 3, my "Blessed" iPad Mini 2, or my "Risen" Asus ROG"
  • I am a law professional and no, it's not only not common practice, it's not an acceptable practice for countries that are part of the World Trade Organization. And India is. You can tax software downloads sure, but that tax must be applied to the distributor before or, to the customer in the moment he accepts to enter the contract. You can't sell something and then come up with a tax to impose on that transaction after it has been closed.
  • It doesn't matter what you think, lawyer or not because the lawyers involved in this case direct has had a judge rule against Nokia demanding that they deposit 571m into an account before proceeding with the sale......and yes I know they can appeal, but how close will their legal bill be to the 571m at the end of the day?
  • Even if their legal bills approach or pass the amount in question, this is a matter of principle, more so than a financial matter. Any action taken now sets a precedent not only down the road for Nokia and Microsoft, but for other mobile companies conducting business in India as well. Posted via my "Gift from God" Note 3, my "Blessed" iPad Mini 2, or my "Risen" Asus ROG"
  • I just said that above..
  • Oops... My bad? Posted via my "Gift from God" Note 3, my "Blessed" iPad Mini 2, or my "Risen" Asus ROG"
  • Nope, not your bad. That's just how comments work. 8) And just goes to show that Great Minds think alike...
  • +1 =)
  • From what I've read about this the charges have to do with royalties for pretty much all the software on the phones that Nokia India to parent company not just app purchases. I'm also wondering about the period of time these taxes are being accrued from. If this is a decade or longer then it still seems kind of crazy but fathomable. There are probably fines also I imagine. This might be a bitter pill but the full extent of this is possibly Nokia being in the wrong. I don't see anyone pointing this out but it is completely possible.
  • You're absolutely right. It is possible for Nokia to be in the wrong. We'll have to wait and see how things play out. Posted via my "Gift from God" Note 3, my "Blessed" iPad Mini 2, or my "Risen" Asus ROG"
  • Oh hush you.
  • The loss of the factory is on the rouge-ish Indian government claiming a right to tax the apps purchased on a phone built there. That is utter garbage! Screw India for this.
    There is plenty of manufacturing capability elsewhere.
  • I have read this article over and over to my amazement. I think the Indian government tax officials are clowns, you want to throw 8000 workers (mostly) Indians out of job cos of some crazy afterthought legal battle on ridiculous taxes. Nokia should just shut down the plant, this is one of the many reasons why developing countries will never catch up. Bad governance, silly policies and selfish leadership!
  • They should shut it down, retool it as a clown factory.
  • Generalizing much? Not every developing country has "bad governance, silly policies and selfish leadership"
  • Unfortunately India has bad corrupt governance. Not sure about the exact merits of this case but companies need some certainty. It seems foreign companies are targeted with huge tax demands, and local companies (with influence) are not as vigorously pursued.
  • Funnily enough, yeah, they actually kinda all do!
  • Hmmmm if all those companies with microkia are having issues with india the common factor is india can no one fix this?
  • India is the common factor only because of the current economic state of the world. Its just that MNC's are withdrawing capital from India in order to allow capital migration back to their home countries and in this process are leaving their Indian subsidiaries dry. The government is just trying to take what it deserves before these companies extract money to a point where they can not pay off their liabilities.
  • Build a factory in the U.S. Let's start with Made in the U.S.A. I'm sure it would boost business for Microsoft!
  • Sure, that will totally work out well. The simple cost of hiring labour in the US will kick up production cost exponentially. India's minimum wage is WAY lower than the US's . Its either going to lead to slimmer profit margins or a factory that runs almost completely on machines. Either way its gono help nobody.
  • Sammy, I can't help but agree with all but the last part. Why not make the parts in Mexico, and then assemble here in the US? Just like Harley Davidson's...
  • Danny, I am all for that!! Bring back the time when Made in the USA really meant something!!
  • +9000 Posted via my "Gift from God" Note 3, my "Blessed" iPad Mini 2, or my "Risen" Asus ROG"
  • Lol. Can you point out three things that are actually "made" in the USA. Isn't the US&A dependent on other countries for the making of their products? Yet they claim to be "first world". Ironic right?
  • American Idol. Hate that show BTW. Bourbon Whiskey.. Love that!! Me. There's 3 things for ya. I was assembled from Mexican parts though too. 8P. Football could be a stand in for any of those though. I mean FOOTBALL!! Not soccer. And America isn't dependant on other countries for the producing of anything. America simply embraces capitalism and the free market in its entirety. How is it our fault that other countries' economy(s) are so poor that we can get goods dirt cheap? Are we bad for "exploiting" that? Simple marketing there, supply & demand. Supply inexpensive quality goods and the demand for them will follow. Here in the US, we can make the best of any and everything. Surface Phone, for sure. But a $30 Lumia has to be made in Asia. That IS First World.
  • Microsoft will probably accept to lose the factory and reorganize the manufacturing in the remaining ones, without changing the value of the deal. It's the easiest way out of it.
    To reflect any changing of price in the deal would require a new deal and a new round of approvals from the authorities, which would delay the deal another few months.
    While I would personally love that to happen, it just won't. And, in the end, it's just one factory. Seeing as these factories are less and less OEM owned and more subcontracted (a la Foxconn) it's more likely that Microsoft, if indeed needs the power of that factory, will just increase the contract with Foxconn or the likes of it.   In the end, the only ones really losing from all of this will be the Indian employees. In which case they can go blame their government for it.
  • Hopefully if they do that, it won't affect the quality of the phones too much. I'm not too big of a fan of Foxconn. Then again, they could do what Blackberry is doing and make their own high-end phones and outsource the 5XX series and such to Foxconn.
  • It will depend on how Microsoft supervises the quality control of the products. Nokia gives a lot of relevance to the quality control. But Microsoft is a bigger company with way too many divisions requiring control. If they make that extra effort, they may keep the quality. But I think the quality of the phones will come down under Microsoft, to the levels of other OEMs. Because Nokia spends way too much money on it. And Microsoft will certainly be more cost-effective concerned.   In either case, I don't know what exactly did the Indian factory produced, but all the Nokia products I have (and they are quite a lot of them as you may imagine) are all produced in China, probably by Foxconn.
  • Yeah, we'll have to see. I imagine that if the same people who worked on the Lumias are now just going to wear Microsoft shirts to work and the environment doesn't change, the quality could still be there. Most of the complaints that I hear about the Surface line are about the software, while I hear almost nothing but great reviews of the hardware, so I think to a certain extent, Microsoft knows what they're doing in hardware.
  • Indeed, we'll see. It will depend on how much will Microsoft be willing to spend on manufacturing. I've had problems with Microsoft hardware before though, so Microsoft as an OEM is already burned on my side (and I'm tying from a Microsoft keyboard and using a Microsoft mouse. So it's not like I don't use their hardware). The last problem I had was with my original Surface that died within 6 months...out of nowhere. And unless it was a Windows update that killed it (and a Windows RT update has already killed the Surface keyboards in the past forcing me to install the entire Windows I'm not rulling it completely out) it was the hardware.
  • You won't need to worry about Microsoft hardware anymore because you have already put your name down in the "pre-order" list for the X in China, right?
  • Hell off with Nokia and Microsoft. Pitty those 8000 people who are going to lose their jobs. I hope they find themselves a good job soon enough to earn their living.
  • I don't think you understand what's happening here..
  • Tell that to the Indian government.
  • No wonder India is in the top ten list of corrupt countries in the world! This just goes to show how Hindu government mooches off multinational companies and gives its people absolutely nothing!
  • Watch your tongue
  • Or what? You gonna start making idle threats? Posted via the WPC App for Android!
  • Wow you now even come down to religion?! Is the ruling judge in thus occasion your friend? How can you call it "Hindu government" or anything like that? Look, either you are undereducated or oblivious of religions and nations.
  • Shut it down. They don't need the jobs. Lets give the American people some work.
  • I'd love for Nokia to build a factory here in the States. Posted via the WPC App for Android!
  • They are, Microkia! Posted via WPC app for WP
  • Lol Posted via my "Gift from God" Note 3, my "Blessed" iPad Mini 2, or my "Risen" Asus ROG"
  • Will the American people accept to return to XIX century working conditions as they have in India? I doubt it. Neither will Europeans accept that. And that's the problem of globalization. Unless American and European governments agree to prohibit American and European companies to move production to the East, jobs will keep being lost to India, China and other Asian countries.
  • Where I live in Florida everything under the sun is hiring, but the people here say "there no jobs“ I just think there lazy.
  • They're hiring for how much a month? Here in Europe unemployment is a serious issue. And everything under the sun is also hiring. The thing is, often they want to hire you without a contract and by paying you miserable salaries, more often than not below the national minimum wage price. Basically they want you to be reduced to the poor life many people are forced to live in countries like China and India. Except they want to do it in Europe and America. It's called exploitation and we've evolved past that.
  • Part time or full and its minimum wage for part time its about €12. full time its about €18 were I live.