An Indian court lifted an asset freeze linked to a federal tax demand on Nokia Oyj easing the path for the Finnish company’s 5.44 billion-euro ($7.5 billion) sale of its handset business to Microsoft Corp.
Nokia must deposit 22.5 billion rupees ($364 million) into an escrow account within 30 days, which may ultimately be used to cover the Espoo, Finland-based company’s disputed tax dues of at least 20.8 billion rupees, according to a ruling by the court in New Delhi. In exchange, India’s Income Tax Department will return control of assets including a mobile-phone plant in the southern city of Chennai, according to the court’s ruling.
The injunction, ordered by authorities in September, would have complicated Nokia’s deal with Microsoft by risking elimination of the Indian assets from the sale had the court ruled in India’s favor, the manufacturer said last month. The Finnish company could face a tax bill of as much as 210 billion rupees should a court order Nokia’s local unit to pay taxes on royalties to its parent company, said Mohan Parasaran, the government lawyer for the case. Nokia has said the claims are without merit.
Brett Young, a spokesman at Nokia, said the company is “currently analyzing the Delhi High Court’s ruling and will only comment once that work is done.” Microsoft’s acquisition is slated for completion in the first quarter.
Nokia said the Chennai plant had continued operations while the assets remained frozen. The facility makes feature phones which are distributed across Asia and the Middle East.
The claim against Nokia adds to mounting demands against foreign companies in India where investors including Vodafone Group Plc, Royal Dutch Shell Plc and International Business Machines Corp. face disputes over so-called transfer pricing.
As of March, more than 2 trillion rupees in tax demands were locked up in various Indian courts, estimates by BMR Legal in New Delhi show. Indian tax authorities and courts have ruled on more than 4,500 transfer-pricing cases since 2011 valued at a combined 1.1 trillion rupees, according to BMR.
The Bombay High Court ordered Vodafone India to take its $200 million transfer-pricing case to a dispute resolution panel after ruling that tax authorities had not properly evaluated the merits of the income being taxed, said Mukesh Butani, a partner at BMR.