Nokia is likely to exclude its manufacturing plant in Chennai from the global purchase of its devices business by Microsoft, as the Finnish firm runs out of time and options to resolve its tax dispute with Indian authorities, people familiar with the matter said, leaving the future of 8,000 direct employees uncertain.
The tax authorities attached the factory soon after the Nokia-Microsoft deal was announced last September. Nokia India has offered to put . 2,250 crore in an escrow account, and has already paid . 700 crore separately to free up the plant. As directed by the Delhi High Court, it also agreed to furnish a . 3,500-crore bank guarantee covering the amount it had transferred to its parent as dividend. But it opposed another condition — to furnish another bank guarantee from the parent covering unspecified potential future tax liabilities — and appealed against it in the Supreme Court, which upheld the HC order. Time Running Out for Nokia
Nokia hasn’t yet revealed its future course of action following the SC order. With the $7.2-billion deal on the verge of closing, given its April deadline, time is running out for Nokia to resolve the India dispute.
“The writing is on the wall. They have no other option” but to leave the plant out of the deal for now, a person close to developments in Nokia said, requesting anonymity due to the matter’s sensitivity. The people said the recent voluntary retirement scheme offered to employees at the Chennai plant indicates that Nokia is preparing to scale down operations, trying to conserve as much cash as possible as it seeks to sort out the dispute and eventually transfer the unit to Microsoft.
Any sale to a third party doesn’t seem likely as several handset makers that ET spoke to said they won’t be willing to pay even close to what Microsoft could be offering for the plant. Shutting down the plant totally also remains an option, people said.
The two companies had previously said the deal closure won’t be affected by the tax dispute in India. And Nokia has already warned it may be forced to close the plant down if the dispute wasn’t resolved.
Overseas investors have been regarding India with some trepidation as tax rules have been changed with retrospective effect and courts have overturned government decisions, forcing companies to write off investments. The inability to resolve the India hurdle comes as Nokia recently said it has received approvals from China, the European Commission, the US Department of Justice and other jurisdictions for the Microsoft deal. The case is among the high-profile tax disputes involving overseas companies that are being closely watched by foreign investors along with the one involving UK’s Vodafone Group Plc. “It will be a pity if the global deal happens leaving India out of its ambit. It will reinforce the perception in the minds of the international investing community that India has an aggressive tax jurisdiction where it is difficult to do business,” said Dinesh Kanabar, deputy CEO at KPMG India.
(With inputs from Anandita Singh Mankotia)
The tax authorities attached the factory soon after the Nokia-Microsoft deal was announced last September. Nokia India has offered to put . 2,250 crore in an escrow account, and has already paid . 700 crore separately to free up the plant. As directed by the Delhi High Court, it also agreed to furnish a . 3,500-crore bank guarantee covering the amount it had transferred to its parent as dividend. But it opposed another condition — to furnish another bank guarantee from the parent covering unspecified potential future tax liabilities — and appealed against it in the Supreme Court, which upheld the HC order. Time Running Out for Nokia
Nokia hasn’t yet revealed its future course of action following the SC order. With the $7.2-billion deal on the verge of closing, given its April deadline, time is running out for Nokia to resolve the India dispute.
“The writing is on the wall. They have no other option” but to leave the plant out of the deal for now, a person close to developments in Nokia said, requesting anonymity due to the matter’s sensitivity. The people said the recent voluntary retirement scheme offered to employees at the Chennai plant indicates that Nokia is preparing to scale down operations, trying to conserve as much cash as possible as it seeks to sort out the dispute and eventually transfer the unit to Microsoft.
Any sale to a third party doesn’t seem likely as several handset makers that ET spoke to said they won’t be willing to pay even close to what Microsoft could be offering for the plant. Shutting down the plant totally also remains an option, people said.
The two companies had previously said the deal closure won’t be affected by the tax dispute in India. And Nokia has already warned it may be forced to close the plant down if the dispute wasn’t resolved.
Overseas investors have been regarding India with some trepidation as tax rules have been changed with retrospective effect and courts have overturned government decisions, forcing companies to write off investments. The inability to resolve the India hurdle comes as Nokia recently said it has received approvals from China, the European Commission, the US Department of Justice and other jurisdictions for the Microsoft deal. The case is among the high-profile tax disputes involving overseas companies that are being closely watched by foreign investors along with the one involving UK’s Vodafone Group Plc. “It will be a pity if the global deal happens leaving India out of its ambit. It will reinforce the perception in the minds of the international investing community that India has an aggressive tax jurisdiction where it is difficult to do business,” said Dinesh Kanabar, deputy CEO at KPMG India.
(With inputs from Anandita Singh Mankotia)
Source: The Economic Times
No comments:
Post a Comment