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Nokia to Retire 5,000 Workers at India Factory Amid Tax Dispute

Nokia Oyj (NOK1V) said about 5,000 workers at its factory in the southern Indian city of Chennai accepted a voluntary retirement plan after the company failed to resolve a tax dispute in the country.

The retirements, accounting for about three-quarters of the facility’s 6,600 employees, were announced in a statement from Nokia issued by an external public-relations company today. The factory makes handsets for exports and is among the largest at Nokia, which has sold its mobile-phone unit to Microsoft Corp. (MSFT)

Nokia, based in Espoo, Finland, joins foreign companies including Vodafone Group Plc, International Business Machines Corp. and Royal Dutch Shell Plc in disputing tax claims in India. Nokia abandoned plans to include the Chennai plant in the sale of the handset business to Microsoft, completed in April, because of the tax spat with India’s government.

“I think they want to find a solution where they can get rid of the factory, since it’s not a business anymore for Nokia,” Hannu Rauhala, an analyst at Pohjola Bank Plc in Helsinki, said by phone. “There will be some writedowns for Nokia, but they won’t be important compared to their balance sheet.”

Nokia introduced the program to support workers faced with uncertainties arising from the tax case and the non-transfer of the plant to Microsoft, it said in the statement. The plan gives “employees the chance to seek new opportunities outside the company based on a firm financial footing,” Nokia said.

Gayatri Rath, a Microsoft spokeswoman in New Delhi, declined to comment.

Tax Deposit

In March, India’s top court ordered Nokia to deposit 22.5 billion rupees ($379 million) into an escrow account and agree to pay any taxes due by the Indian unit, before the company can transfer the Chennai factory to Microsoft.

“Nokia is keen to work with authorities in India to resolve the tax disputes,” Mark Durrant, a company spokesman, said in a statement yesterday. Nokia has sent a letter to Indian Prime Minister Manmohan Singh, seeking an “amicable resolution” under the Finland India Bilateral Investment Treaty, he said.

Shares of Nokia fell 0.6 percent to 5.36 euros at 11:07 a.m. in Helsinki.

Under the deal with Microsoft, Nokia will continue to make mobile devices for the Redmond, Washington-based company at the Chennai factory.

“Nokia intends to respect commitments under the services contract,” it said in a separate statement today.

To contact the reporters on this story: Bianca Vázquez Toness in New Delhi at btoness@bloomberg.net; Ganesh Nagarajan in Chennai at gnagarajan1@bloomberg.net

To contact the editors responsible for this story: Michael Tighe at mtighe4@bloomberg.net Lena Lee, Ville Heiskanen

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