Providing interim relief to Nokia and paving the way for its proposed deal with Microsoft, the Delhi High Court has directed the Income Tax Department OF India to lift the ongoing freeze on the sale of the company?s Chennai-based manufacturing plant. However, the ongoing dispute over tax-liability between the government and Nokia will continue.
The High Court has asked Nokia to deposit Rs 22.5 billion in an escrow account. However, if Nokia loses the case, the tax liability on the company could be as high as Rs 211.53 billion, including interest and penalty. The High Court has also asked Nokia to submit a letter of guarantee stating that the company will comply with the court?s order. If the company defaults in future tax payments, the Income Tax Department can approach the court again.
As per the court order, Nokia Corporation Finland and Nokia India will jointly be responsible for payment of income tax. Besides, Nokia and Income Tax Department have also been provided with the option of reaching a mutual agreement on the tax dispute.
Following the court?s judgment, Nokia has issued a statement that it acknowledges the decision by the Delhi High Court to release its Indian assets, including its Chennai facility, for the planned transfer to Microsoft. The company further states that the decision allows for the transfer of the assets. According to the company, Nokia has been asked to meet a number of conditions in the ruling and still needs to provide the authorities with additional documentation. The company expects these conditions to be in line with international treaties and practices. Further, it expects the transaction with Microsoft to close in the first quarter of 2014.
Earlier, Nokia had offered to pay the Indian government about Rs 3 billion to resolve the tax issue so that its Chennai manufacturing plant can be de-frozen and sold to Microsoft Corporation. In September 2013, Microsoft had agreed to acquire Nokia?s devices and services business for $7.2 billion. Nokia?s Chennai-based manufacturing unit, which supports a workforce of about 8,000, is part of the deal. However, in the light of the tax dispute between Nokia and the government not getting resolved before December 12, 2013, Nokia would have been forced to segregate its manufacturing unit, thereby impacting its deal with Microsoft.
