Nokia Oyj (NOK1V) needs to guarantee tax liabilities of the Indian unit before the company can transfer one of its largest phone factories to Microsoft Corp. (MSFT:US) as part of the device unit’s sale, India’s top court ruled.
The Supreme Court upheld the decision of the lower court asking Nokia to deposit 22.5 billion rupees ($368 million) into an escrow account and said the parent should agree to pay any tax dues after related litigation is over, according to a two-judge bench headed by A.R. Dave in New Delhi today.
“Nokia is disappointed by today’s decision,” Brett Young, a spokesman for Nokia, said in an e-mail. “The company strongly believes its offer to the Indian tax department is fair for all sides.”
Microsoft agreed in September to buy Nokia’s mobile-phone division, including its factories, in a 5.44 billion-euro ($7.6 billion) deal. The market for phone devices in India, Asia’s third-biggest economy, expanded 18 percent in 2013, outperforming global growth of 4.8 percent, according to IDC.
Indian tax officials last year raided Nokia’s manufacturing plant in Chennai, the southern Indian city previously known as Madras, claiming the Espoo, Finland-based phone maker hadn’t paid enough in taxes on royalty payments made by the unit to its parent. Nokia established the factory in 2006.
An Indian court told Nokia in December to deposit money into an escrow account and agree to guarantee any tax dues to enable transfer of the factory in Chennai. The country’s tax department had sought a halt to the transfer to Microsoft.
Nokia filed an appeal to India’s top court saying the conditions laid out by the Delhi High Court were not aligned with international treaties and practices.
The Finnish company has said it expects the deal for its phone unit to close before the end of March.
Nokia on Feb. 14 said the tax case in India is not expected to affect the timing or the deal terms of the anticipated transaction between the company and Microsoft.
The company’s factory employs 8,000 workers and makes entry-level devices including the Nokia 105 that sells for as little as 1,135 rupees.
Nokia has said if the Indian assets are excluded from the broader deal with Microsoft then it could agree to act as a transitional contract manufacturer, offering devices for a period not exceeding 12 months from the completion of the deal.
Nokia shares fell 0.6 percent to 5.40 euros at 5:47 p.m. in Helsinki.
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