Tax relief: Nokia's Chennai workers look forward to joining Microsoft

Workers of Nokia’s Chennai’s plant welcomed the Delhi High Court order that has paved the way for the sale of the assets ofthe Finnish firm in India toMicrosoft.

The court had restrained the company from selling the assets on a plea by the Income Tax Department, which has accused it of defaulting on payment of tax amounting to about Rs 4,000 crore, minus interest and the penalty.

“We all are happy. It is a welcome relief…,” said Nokia IndiaEmployees Union President Saravana Kumar.

Speaking about the next course of action, he said: “We are yet to see the verdict. We are having our Executive Committeemeeting tomorrow and on Monday. In that meeting we will decideon the further course of action. Currently, it (the verdict)is a relief to us.”

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The Financial Express quoted Kumar as saying thatthe union is satisfied with the outcome and looks forward to joining Microsoft.

“We are happy that we could be part of the Microsoft deal, finally,” he said.

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Recently, the Nokia India Employees Union, representingthe 8,000 workers, of whom 20 percent of them women,moved the Delhi High Court seeking the safeguarding of theirinterests in view of the company’s ongoing legal battle withthe Income Tax department over its tax liabilities.Fearing job losses, the plea said the workers want themobile manufacturing unit in Chennai to continue its operationirrespective of the outcome of the case.

The workers had moved the court in the wake of Nokia’ssubmission in the high court earlier that if the sale ofNokia’s unit in Chennai does not takes place, the company’sIndian arm will wind up its operations here over a period of12 months and the assets here will have little value.

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The factory has produced 800 million phones and its ancillary suppliers have around 20,000 workers, both direct and indirect. To date, Nokia has invested $ 285 million in its manufacturing operations in Chennai.

The plant in Sriperumbudur is one of Nokia India’s biggest factories.Nokia had appealed against its seizure and has been trying to resolve the dispute ahead of the closure of $5.4-billion-euro Microsoft deal.

A Delhi High Court bench of justices Sanjiv Khanna andSanjeev Sachdeva on Thursday said that it permitted the sale of assets byNokia India to Microsoft.

The court has asked Nokia to deposit Rs 2,250 crore in an escrow account. If Nokia loses the case, the tax liability could be as high as Rs 21,153 crore, including interest and penalty.

Nokia has also been asked to give a letter of guarantee that it will comply with the court’s order. If the company defaults in future tax payments, the department can approach the court again.

" By asking Nokia to offer an initial amount of Rs 2250 crore as security, the Indian administration has so lost an opportunity to build goodwill with an ambassador of India who has been an early investor. As I recall, Nokia was amongst the first investors way back in 1992 when it signed an alliance with Wipro,“Mukesh Butani, Partner BMR legal told CNBC-TV18.

Nokia Corporation Finland and Nokia India will jointly be responsible for payment of income tax. Besides, Nokia and the tax department are free to reach a mutual agreement on the tax dispute.

The court, however, categorically stated that Microsoft would not be responsible for any tax liability.

Dinesh Kanabar of KPMG India, termed the court’s order as a negative for India’s image as it was being viewed as a move by one country’s tax authority that could stall the progress of a major global deal.

In an e-mailed statement, 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.”

The company will now start to prepare for the planned transfer of the assets, but noted that there are still a number of statutory clearances that remain before the assets can transfer.

Nokia has asked the Indian government to work with urgency to facilitate the other approvals needed for the transfer and secure employment for the tens of thousands of employees involved.

An extended asset freeze would have blocked Nokia from transferring the ownership of the Chennai plant, possibly forcing it to operate as a subcontractor of Microsoft.

In March, Nokia was served with a tax demand notice of about Rs 2,080 crore for five fiscal years starting from 2006-07 for not withholding TDS on royalty payments to its parent company.

Subsequently, through an order issued on September 25, 2013, the Additional Commissioner of Income Tax had attached the assets and bank accounts of Nokia India, including its factories in Chennai “in light of the fact that Nokia India had remitted Rs 3,500 crore as dividend to Nokia Finland” without paying proper tax on the income. The Finnish company had then approached the Delhi HC for lifting the freeze.