Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s deal with Microsoft could be affected if the company continues to see tax problems in India. James Crabtree and Richard Milne of the Financial Times report that the nation’s tax department is threatening to triple Nokia’s tax liability, bringing it to approximately $1.1 billion.
Nokia goes to court Thursday
On Thursday, Nokia will be in a courtroom in India for a ruling about whether the tax dispute will keep it from transferring its Indian assets to Microsoft Corporation (NASDAQ:MSFT). The company wants to make the assets part of its sale of the devices division to Microsoft. That deal is currently worth €5.4 billion, including Nokia’s assets in India.
Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) is trying to meet its internal deadline, which is the close of business today in the U.S. If the Indian court rules in Nokia’s favor on Thursday, then it could still make the transfer of its assets in India to Microsoft under the terms of the original deal.
Nokia’s tax dispute was $375 million
Originally, Nokia was on the hook for about $375 million in taxes to be paid to India’s tax department. That claim was in connection with payments Nokia’s subsidiary in India made to Nokia itself in Finland. That dispute started this year after Indian officials raided Nokia’s main facility in Chennai.
Then when Nokia announced the deal with Microsoft Corporation (NASDAQ:MSFT), officials in India froze its assets in Chennai because of concerns that the struggling company would not have enough money to pay the tax bill.
Nokia could see a higher tax bill
According to the Financial Times, however, sources indicate that the revenue department in India could raise an additional tax claim against Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V). That would push the company’s tax liability up to approximately $1.1 billion, which would turn Nokia’s tax case into one of the country’s biggest disputes according to value. Indian officials have levied taxes against other companies already, including International Business Machines Corp. (NYSE:IBM) and Vodafone.
In spite of the difficulties, experts don’t seem to think the tax liability will have a major effect on the deal between Nokia and Microsoft. However, it does show just how aggressive India intends to be when it comes to business deals and corporate taxes.
Nokia tries to settle with India
Nokia did offer to set apart a $488 million cash security, hoping to ensure that it would have the cash to pay the bill. The goal of that offer was to get them to unfreeze the Indian assets and transfer them to Microsoft according to the original deadline. Before that, the company offered to pay $361 million to settle its tax liabilities in India. The tax department rejected that offer, however.