In a major relief for Nokia India, the Delhi High Court on Thursday lifted the freeze on the assets of its phone manufacturing facility in Chennai, paving the way for it to be transferred to Microsoft. However, the Indian entity's tax liability, should it lose the case eventually, has been shifted to Nokia Finland, which will need to submit a letter of guarantee to the high court stating it will be liable to pay the taxes. This resolution to the case was based on an offer made by Nokia Finland to the court.
The court has also asked it to deposit Rs 2,250 crore in an escrow account as an interim payment. While an offer to this effect had been made by the company earlier in lieu of lifting the freeze, it was rejected by the income tax authorities. The amount can be raised if the valuation of assets of the Chennai plant is higher. The high court’s order has cleared the uncertainty surrounding the transfer of assets — Nokia’s deal with Microsoft is valued at $7.3 billion — and also the fate of 8,000 employees.
A statement from Nokia said, “Our current understanding is that this decision allows for the transfer of the assets. However, Nokia has been asked to meet a number of conditions in the ruling, and still needs to provide the authorities with additional documentation. Nokia expects these conditions to be in line with international treaties and practices.” Nokia said it continued to expect the transaction with Microsoft to close in the first quarter of 2014.
Apart from the R2,250 crore, Nokia India will pay R700 crore, in instalments, by March 2014 as agreed upon earlier. In the event it loses the tax case, Nokia Finland will be liable to pay a demand of up to R3,500 crore, thus taking the total outgo to R6,450 crore. However, the court has said that in case a liability arises due to tax deduction at source (TDS) on Nokia Finland, it would be over and above this amount. The IT department has raised a tax demand of R5,154 crore, including interest and penalty, against Nokia Finland for not deducting TDS.
The shifting of the liability to Nokia Finland is on the basis of a clause in the double taxation avoidance agreement (DTAA) between India and Finland that provides for assistance in collection of taxes and payable by a state from a