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Nokia loses India tax appeal, considers next move in Microsoft deal

  • Nokia (NOK -0.4%) says it is considering its options after India's Supreme Court rejected its appeal against a demand for a multimillion-dollar payment before it transfers a mobile phone plant and other assets in the country to Microsoft (MSFT -0.2%).
  • The ruling upholds a lower court verdict ordering NOK to pay a 35B rupee ($572.5M) guarantee after local authorities blocked the factory's transfer in a tax dispute; as a result, the factory - a critical part of the smartphone business MSFT is purchasing - remains shut.
  • If the Indian manufacturing plant is not transferred to MSFT, it could mean less money for NOK from the deal; NOK could run it as a contractor to MSFT but not for long, the company has said in court hearings.
Comments (33)
  • dwdallam
    , contributor
    Comments (6580) | Send Message
     
    They need to cut and run, take a loss from MS, and just get out of India before their rating changes to negative because of the Indian authorities extortion, which is causing uncertainty for Nokia's future.
    14 Mar, 03:37 PM Reply Like
  • BBcool
    , contributor
    Comments (282) | Send Message
     
    Where would they go?
    17 Mar, 02:16 AM Reply Like
  • Timothy Bryan
    , contributor
    Comments (705) | Send Message
     
    Take the 300 million dollar hit and wind down the operation, give everything to the idiots there.
    14 Mar, 03:42 PM Reply Like
  • 15277602
    , contributor
    Comments (36) | Send Message
     
    No more negotiations. It will be like a plague. Amputate a toe and get going.
    14 Mar, 03:53 PM Reply Like
  • Randal James
    , contributor
    Comments (2318) | Send Message
     
    Pay $50M each to Alcatel and Huawei NOT to upgrade India beyond 1/2G until Indian authorities cough up $700M for being deekheds. So what if they can't download a Bollywood movie in 3 days?
    14 Mar, 04:29 PM Reply Like
  • sidiji
    , contributor
    Comments (144) | Send Message
     
    Almost a certainty at this point that Nokia will abandon the plant. No way will it agree to an open ended liability 'undertaking' for its subsidiary; it certainly SHOULD NOT do so under any circumstance nor pay the thieves a single cent.

     

    Agreed, it's high time to cut off the subsidiary, abandon this obsolete plant and move the lines to the new factory in Hanoi, Vietnam.

     

    It's a very good thing the subsidiary repatriated almost the entirety of its capital to the parent in Finland Q3 of last year...I think Nokia suspected it would come down to this given the extra-legal nature of the tax extortion scheme perpetrated on it by the Indian tax thugs.

     

    Good riddance, Nokia will recoup the cost from their capital gains; taxes paid (if any after prolonged litigation) will fall under the Indian-Finland anti-double taxation bilateral treaty and be refunded by Finland to Nokia.

     

    I'd urge Nokia to file complaints with the relevant EU regulatory trade agencies and begin litigation in European courts on this 'taking'. This is a de facto expropriation without compensation.

     

    The EU need to start freezing some of India's assets and accounts in Europe; and Nokia needs to bring litigation not in India but in European courts given the patent illegality of India's use of retroactive tax law changes to entrap Nokia with these ridiculous ex post tax liabilities; this is a taking and de facto nationalization...EU needs to respond in kind.
    14 Mar, 04:44 PM Reply Like
  • Timothy Bryan
    , contributor
    Comments (705) | Send Message
     
    Hey Syd,
    I finally realized who you are on the other forum :-)
    14 Mar, 05:11 PM Reply Like
  • La Rue
    , contributor
    Comments (671) | Send Message
     
    Same here. :)
    15 Mar, 07:29 AM Reply Like
  • Randal James
    , contributor
    Comments (2318) | Send Message
     
    I'd be willing to bet Indian assets in Finland are already frozen - or will be until the may thaw.
    14 Mar, 04:59 PM Reply Like
  • 15277602
    , contributor
    Comments (36) | Send Message
     
    I wonder what contract says about the role of Finland in this situation. Contract is between countries while Nokia is merely following those regulations stipulated in that contract. Public opinion is supporting Nokia all over, but when it comes to paying something out from ordinary citizens wallet it becomes touchy. I actually believe that Finnish government will silently support Nokia with the condition that this "unfortunate event" will not get escalated to issue between India and Finland, but remains issue between India and Nokia.
    Oh well. Shit happens.
    14 Mar, 05:21 PM Reply Like
  • Charles Cooke
    , contributor
    Comments (48) | Send Message
     
    Looks like India is taking a page out of our Attorney General's Office, shaking down J.P. Morgan Chase and Citi Corp. Nokia, just burn it down and leave.
    14 Mar, 05:51 PM Reply Like
  • AI2
    , contributor
    Comments (148) | Send Message
     
    I actually wouldn't shut it down if I were Nokia. I would prolong this thing while patient shift operations to other factories and let the remaining assets depreciate further in value. Afterwards, declare bankruptcy so the Indian government gets absolutely nothing.
    14 Mar, 07:03 PM Reply Like
  • sidiji
    , contributor
    Comments (144) | Send Message
     
    Some have argued that Nokia should continue to operate the plant on a contract basis to supply Microsoft, however, the new Nokia plant in Hanoi Vietnam should be able to replace the capacity out of India, and if needed, Nokia can always contract out to the Chinese OEM's if additional supply is required.

     

    The danger of continuing to drag this out is that any revenues earned by the Indian plant going forward will be effectively frozen and nationalized by India, so it doesn't benefit Nokia at all. Further operation will allow the Indians to come up with even more novel and fictional taxation schemes which at this point everyone can see as having the single purpose of de facto nationalizing the assets of Nokia to the maximum extent without consideration of due process or, god forbid, justice.

     

    Given the nature of the Indian tax extortion scheme, and the lack of recourse to a fair and impartial justice system, there can be only one ending to this story, bankruptcy of the Indian subsidiary. Given that eventuality, it's better to end it now then to drag this out.

     

    Nokia need to send out a clear message that it is not to be trifled with or held up for extortionate ransom demands by a bunch of covetous thugs. Whatever Nokia does, it must not inject any more capital into the Indian investment nor open itself up to additional liability. You cannot deal with thieves and highway robbers; India blatantly targeted Nokia for an illegal tax shakedown...it will do so again and again til there is nothing left. You cannot trust thieves to honor their promises, you can only trust them to act according to their base nature.
    14 Mar, 10:55 PM Reply Like
  • billcharlesdixon
    , contributor
    Comments (1364) | Send Message
     
    India is my favorite country regarding the people, but the government and higher levels obviously stink and care nothing about the beautiful Indian people.
    15 Mar, 09:47 AM Reply Like
  • BBcool
    , contributor
    Comments (282) | Send Message
     
    thank you im buying it good!
    14 Mar, 11:37 PM Reply Like
  • Prashanth Mannar
    , contributor
    Comments (4) | Send Message
     
    I seriously don't understand the anger against India here. Can someone explain me how India is at fault here? I do not see this any different from the headline "Apple pays $193m tax in Australia on $27b revenue as Federal Government vows to capture lost taxes". Idiots and Thugs are not the words I will use against the largest democratic country in the world.
    15 Mar, 01:52 AM Reply Like
  • billcharlesdixon
    , contributor
    Comments (1364) | Send Message
     
    The people are beautiful. The government sucks.
    15 Mar, 09:48 AM Reply Like
  • sidiji
    , contributor
    Comments (144) | Send Message
     
    Do the research before you comment, they changed the tax law retroactively in 2011 with the specific goal of entrapping Nokia into tax liabilities that never existed before. After the tax law change, they raided Nokia and said...oh look you cheated on your tax for the prior ten years (which Nokia did not as they were in full compliance with the existing laws during those 10 years)...so lets see with penalties which are 10x the tax amount....hmm that amounts to everything you have. They've used this same trick against Vodafone and other companies, it's just not Nokia...even after Vodafhone won at the supreme court, they went back and changed the tax laws a second time to allow them to continue persecuting that business.

     

    That is blatant theft, nationalization, a major miscarriage of justice, and all around thuggish and criminal behavior Even the mafia acts in a more reasonable and transparent manner by comparison.

     

    As for idiots, it's self evident. India's stupid arrogance makes it think it can get away with these criminal expropriation and thefts, but no foreign business will ever invest in this cesspool of a country ever again. They are killing their own future, you can't get more asininely idiotic than that. More to the point, it is pissing away 35,000 jobs and msft as a future corporate citizen and a huge tax revenue base in exchange for years of litigation...at the end of which it will get nothing but a hollowed out building and a reputation for self-immolating stupidity.

     

    How can you have democracy when you still have a caste system with some people still considered untouchable; so far India is the only country where public rapes are reported. This action against Nokia is very much a public rape; EU needs to start taking retaliatory reprisals; Nokia needs to look into suing the sovereign state directly and freezing India's extra-territorial assets in litigation in EU and US courts. The only way to deal with thugs is to smash them in the face, you give in, they will ride you forever; as evidence, as soon as Nokia said it was willing to pay the original tax to settle this entire matter, the thugs upped the liability to 10x as much. Time for Nokia to leave India.
    16 Mar, 04:09 AM Reply Like
  • joshvegas
    , contributor
    Comments (268) | Send Message
     
    sidiji, thanks for great clarification! You should some articles on Nokia:)
    16 Mar, 04:14 AM Reply Like
  • beta-user
    , contributor
    Comments (5) | Send Message
     
    "How can you have democracy when you still have a caste system with some people still considered untouchable" so true.

     

    Also how can you have democracy if you use election machines (as does the USA, but that's another story).

     

    sidiji, thanks for that insightful comment.
    18 Mar, 05:26 PM Reply Like
  • BBcool
    , contributor
    Comments (282) | Send Message
     
    Perhaps time for ALL factories to leave india.
    18 Mar, 06:20 PM Reply Like
  • Beaupick
    , contributor
    Comments (11) | Send Message
     
    I cannot believe this is a one-sided money grab by India against a Finish Company! It would be too blatant! India must think their case is based on
    law; not some law they just thought up but, one natural to them and a law
    they plan to practice from now on. Let all strangers in a country be beware
    of pitfalls.
    15 Mar, 02:12 AM Reply Like
  • billcharlesdixon
    , contributor
    Comments (1364) | Send Message
     
    Disagree with everything you wrote except the last statement.
    15 Mar, 09:49 AM Reply Like
  • Richard Waldren
    , contributor
    Comments (221) | Send Message
     
    Its time to get the hell out of Dodge. This is nothing more than an Indian shake down, they know it and now the rest of the world does to. Why do business here? How much money does an empty factory provide for its workers?
    15 Mar, 02:27 AM Reply Like
  • Randal James
    , contributor
    Comments (2318) | Send Message
     
    Mr. Mannar

     

    It would seem that India's tax officials are especially keen on going after firms they perceive as being able to pay, regardless of the merits of the initial tax claims. This article, from December of 13, gives some details on the situation and mentions several other firms also in difficulty with the tax bandits.

     

    "According to court documents, Nokia generated more than $24 billion of revenue on Indian handset sales from 2005—when the factory was built—through March 2012. Indian authorities claim the company owes as much as $3.4 billion in back taxes and the tax officials had frozen Nokia's Indian assets to ensure that the company had enough cash to pay the bill.

     

    The Nokia tax dispute is one of many with foreign companies, which are causing many to question whether it is worth doing business in India. International Business Machines Corp., BMW AG, Royal Dutch Shell PLC, Vodafone Group PLC and other big global names have also been served notices for unpaid taxes in recent years. They are all disputing the tax claims.

     

    Companies increasingly are unable to predict their Indian tax liabilities, Mukesh Butani, managing partner of the BMR Legal tax consultancy, said. The proliferation of so-called "high-pitched assessments," where tax bills are more than twice the amount declared by the company, is making it difficult to execute business plans in India, experts say. "In the past, the stakes were low and companies did not even factor tax in their costs," said Mr. Butani. "Now [tax is] being factored into business-making decisions."

     

    Sonal Varma, an economist at Nomura Holdings said an unpredictable tax regime is one of many barriers to investment in India. India's $1.8 trillion economy attracts around $40 billion a year in foreign direct investment when it should be getting much more, she said. "If you have companies willing to do business in India, are you going to facilitate them or not?" is the question India needs to be asking itself," Ms. Varma said. "India needs to make it easier to companies to do business, by removing uncertainty."

     

    India isn't the only country to go after big global companies for allegedly underpaying taxes. Assessing taxes on international income is complicated, so many multinational companies face tax disputes in multiple countries. Starbucks Corp. recently agreed to pay corporate tax in the U.K. for the first time since 2008, under pressure from the government.

     

    Still, India has been one of the most aggressive and most unpredictable in its reinterpretations of what multinational corporations owe, said Ketan Dalal, joint tax leader at the Indian office of PricewaterhouseCoopers. "Anywhere in the world, tax is an important consideration, but in India it is a disproportionate consideration," he said. "There is a distinction between the ability to predict tax exposure, where a dispute could possibly arise, and something where there conceivably shouldn't have been any exposure."

     

    http://on.wsj.com/OrldBl

     

    There are no regions of the world with which India should be more eager to develop and maintain cordial and open relationships than with North America and Europe. Tax banditry will not go unnoticed in any of the affected nations which will not help Indian IT firms seeking to sell software and services in the West nor, surely, will you see firms willing to expand their own footprint into India because of fears of taxes that appear to be more whimsical than realistic.

     

    Nokia's recent gross profit on devices was around 20%. They also endured several years of losses. To suggest there is a liability for 14% of gross sales is absurd, whether a big democratic country or not. If these taxes are sort of arbitrary, surely the Indian government would not mind similar extractions of wealth from Indian firms such as the various Tata enterprises, Infosys, and Dr. Reddy.
    15 Mar, 02:46 AM Reply Like
  • billcharlesdixon
    , contributor
    Comments (1364) | Send Message
     
    Excellent and most informative post! Thank you very much.
    15 Mar, 09:51 AM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (1868) | Send Message
     
    Excellent post Randal.

     

    One more key point is that the Indian taxes in the Nokia case are retroactive. Indian IT Is claiming transfer taxes since 2006. While the law they cite was enacted only in 2010 or 2011, called something like "Tax Clarification Act"...what double speak.

     

    Additionally, the taxes in question have been already paid/assessed in Finland. The Finnish gov, and tax authorities claim that they have the right to tax in this case. This is also the global standard for handling such transfer taxes. Apparently the Indians have a a different 'standard' where they want to tax the value of SW on the devices built by Nokia India.

     

    So, we have two fundamental issues here, that one does not expect from a developed nation/democracy: 1) retroactive taxation, and 2) disregard / ignorance of international tax treaties.
    15 Mar, 04:51 PM Reply Like
  • 15277602
    , contributor
    Comments (36) | Send Message
     
    Indian tax authorities heard the news of sale to MS from Tata consulting agent and decided to attack before its too late. Problem is that everybody is seeing trough their false logic and greed.
    Beware all companies investing India: you might be next in the line!
    15 Mar, 07:12 PM Reply Like
  • DanoX
    , contributor
    Comments (2577) | Send Message
     
    So. Ha..Ha..Ha.. Doing business in India bites you in the ass eventually. Apple has had trouble in India selling iPhones because of shakedowns by cell companies from top to bottom.
    15 Mar, 11:25 PM Reply Like
  • Riimpekki
    , contributor
    Comments (79) | Send Message
     
    I think the sympathy is on Nokia side because Indian tax official hasn't been coherent or systematic or logical in its demands. First they raided the plant illegally and then their demands have been varying. And Finland and India still has the tax agreement which prevents double taxation.
    15 Mar, 05:11 AM Reply Like
  • billcharlesdixon
    , contributor
    Comments (1364) | Send Message
     
    The supreme court of India is very very wrong here , both legally and morally, and they should recognize it immediately, or be over ridden by the executive branch, that is if they too are not corrupt.
    15 Mar, 09:54 AM Reply Like
  • SSGAJ
    , contributor
    Comments (125) | Send Message
     
    India 572.5 million and the US Courts find an unethical legal tactic to hold BP accountable for billions over what they should reasonable pay. It seems to me that governments have too much control over everyone. What a mess the world has steadily become. Common sense and morality does not prevail in too many cases.
    On a smaller side ---- of issues ... the state of NJ on Thursday put a bill up to prohibit smoking on all the beaches. I have never smoked, even pot and I feel they have gone too far. They are not satisfied with having desinated areas, but now feel it is "TIME" to expand their hold on civil liberites. Sneeky tactics in play here once again. With more pressing manners like government corruption, failing economy, degrading education, they shift their attention to trival items just to get public attention. They certainingly have mine. Valerie Vainieri Huttle should get the boot. I could go on and on about our governor and president, but I will hold that for another time. By the way I voted for them as well. We are doomed! Sorry to say
    16 Mar, 10:06 AM Reply Like
  • Vx
    , contributor
    Comment (1) | Send Message
     
    $NOK continue to play Ghandi with India's tax department. Now the world knows this is a corrupt and nepotistic government which are probably not too smart OR blatantly arrogant to raise the extortion level. I do hope something will change after the up coming India election.

     

    The aim now is probably have EULA impose sanction on India. $NOK will be moving on with the $MSFT deal as they've previously announced, even before the appeal proceedings. Manufacturing capacity of the plant in China and Vietnam should be adequate to support? Can anyone confirm this?

     

    Life goes on, business continues, profit will follow suite for all party, except for, the Indian Tax Department and sadly, 8000 Indian staff will lose their job because of the government that they choose.

     

    BP, then Vodafone (I'm thinking bribe, as the court let them off the hook) and now Nokia. Time to throw them a curve ball, as this form of extortion will never stop.

     

    As for $NOK, I think it's a buying opportunity if the price drops due to panicky investors or shorts with better counters to hit, so be it. Manufacturing and sale of Nokia phones (imported to India) will still continue, with or without the Chennai plant. Logistical overhead over shipping and import duties.. a small dent in the larger scheme of things. No problem here..
    21 Mar, 04:56 PM Reply Like
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