Nokia offers to set aside more cash against Indian tax demand

Finnish company Nokia Corp has proposed to set aside a large sum of cash in return for the release of its Indian assets, in a bid to find a temporary solution to a tax dispute with Indian authorities so that it can close the sale of its handset business to Microsoft Corp.

According to a Wall Street Journal report from Stockholm citing sources familiar with the matter, Nokia will outline the proposal during a hearing at Delhi's High Court today over the tax demand, which the court has valued at Rs21,153 crore.

The hearing relates to Nokia's request made last month that the court unfreeze its immovable assets in India, including its handset factory in Chennai.

Nokia's Indian assets were frozen in September this year by the Income Tax Department, to ensure the company has sufficient funds to pay the tax bill. Today's hearing comes just two days ahead of a 12 December deadline, by which time Nokia has said it needs to get the assets released to transfer them to Microsoft as part of a $7 billion deal signed in September.

Nokia will propose depositing a cash security of €270 million ($370.28 million) to the Indian tax authority, in addition to €85 million that it already has deposited, and will attempt to resolve the tax issue at a later stage, according to two people familiar with Nokia's plans.

In a written statement, Nokia said the company is "committed to getting its Indian assets unfrozen"' and called on the Indian government and tax authority "to work with urgency toward a solution" before the 12 December deadline. A spokesman declined to comment on the specific plans.

If Nokia is unable to resolve the issue by Thursday, the Indian factory won't be part of the assets transfer to Microsoft, and thus Nokia will be forced to remain in the mobile device business as a contract manufacturer of mobile phones for Microsoft for a transitional period.

So far, Indian tax authorities have put forward a €250 million tax claim to Nokia, mainly relating to taxes that the authority says the Finnish company has avoided by wrongfully claiming an exemption given on software exports. However, the total tax bill also includes claims that the tax authority has yet to put forward.

Among the assets that remain frozen is Nokia's 8,000-employee factory in Chennai that churns out millions of basic mobile phones annually, producing 20 different models and providing a large source of revenue for the devices and services operation that was sold to Microsoft in September.

Finland's government has also tried to mediate in the dispute between Nokia and Indian authorities. Alexander Stubb, Finland's foreign trade minister, said the country's Prime Minister, Jyrki Katainen, has appealed directly to India's PM Manmohan Singh. Stubb discussed the matter with India's trade minister Anand Sharma when he visited the country in October, and spoke with India's finance minister P Chidambaram, on the phone last Thursday.