Update: Nokia India has shared the following statement with Medianama:
“Late last week, the Delhi High Court ruled in Nokia’s favour in a case where the Indian tax authorities froze some of Nokia’s assets for potential claims that hadn’t even been raised against the company yet. Nokia welcomes this court decision.
We are now working closely with the tax authorities to ensure that the parties will find a comprehensive solution to the remaining open issues, and discussions have been constructive. Contrary to speculation in the media, Nokia has sufficient assets in India to meet its tax obligations, details of which will be shared with the tax authorities to allay any concerns they may have. Given that negotiations are ongoing, Nokia will not comment further on this matter.
Nokia reiterates that it operates with transparency in its business transactions, and is committed to resolving its outstanding issues with Indian Tax authorities in accordance with all applicable laws, while also ready to defend ourselves vigorously as needed. This resolution to fulfill all our obligations is part of our firm commitment to be a good corporate citizen.”
Earlier: Following Microsoft’s acquisition of Nokia’s devices and services business, the Delhi High Court has put an interim stay on Nokia India transferring the ownership rights for any of its immovable assets, reports The Financial Express.
The court has also reportedly forbidden Nokia from transferring these assets to any third person and has asked the company to inform the assessing officer before sending back money overseas. Note that we were unable to locate any relevant stay order on the Delhi High Court website.
The IT Department has apparently argued that if Nokia transfers its ownership rights to others, the company will not have enough assets through which it can meet the estimated tax liability of Rs 3,997 crore along with the existing tax demand of Rs 654 crore. It notes that Nokia had recently paid Rs 595 crore as dividend distribution tax on September 10, 2013.
The department had also sought for the valuation of Nokia India’s business as part of the Microsoft deal and had noted that the tax liability could increase, since it currently doesn’t include adjustments based on transfer pricing.
Microsoft Buys Nokia’s Devices & Services section: Earlier this month, Microsoft had acquired Nokia’s Devices & Services business for €3.79 billion and licensed its patent portfolio for €1.65 billion. The deal included both Nokia’s Smart Devices business unit and its Mobile Phones business unit. Microsoft had also acquired the Asha brand and had licensed the Nokia brand for use with current Nokia mobile phone products.
Following this acquisition, Nokia CEO Stephen Elop has stepped aside as Nokia President and CEO to become Nokia’s Executive Vice President of Devices & Services. Risto Siilasmaa, Chairman of the Nokia Board of Directors had assumed as Nokia’s interim CEO.
The transaction is expected to close in Q1 2014, subject to approval of Nokia’s shareholders and regulatory approvals in India, EU, US, China, Brazil, Russia, Canada. At the close of this acquisition, around 32,000 people were expected to transfer to Microsoft, including 4,700 people in Finland and 18,300 employees directly involved in manufacturing, assembly and packaging of products worldwide.
Nokia Tax Case: In June 2013, the IT commissioner had dismissed Nokia India’s plea against the Rs 2,100 crore tax claim by the Income Tax (IT) department, following which the company had noted that it was considering all viable options, including taking back the case to the Delhi High Court. The company had also pointed out that Finland’s finance ministry had launched a mutual agreement procedure with its Indian counterpart under the bilateral Double Taxation Avoidance agreement to resolve this issue.
In the following month, a Business Standard report had suggested that the case was headed for an out-of-court settlement by imposing a fine on Nokia rather than asking the company to pay up the pending taxes. However, there are no further updates on this since then.