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Nokia likely to leave India plant out of Microsoft deal
By Gulveen Aulakh, ET Bureau | 16 Apr, 2014, 07.44PM IST

NEW DELHI: Nokia is likely to exclude its manufacturing plant in Chennai from the global purchase of its devices business by Microsoft, as the Finnish company runs out of time and options to resolve the ongoing tax dispute with Indian authorities, several 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 Rs 2,250 crore in an escrow account, plus pay an additional Rs 700 crore in instalments to free up the plant.

As directed by the court, it also agreed to furnish a Rs 3,500 crore bank guarantee covering the amount it had transferred to its parent as dividend. But it has opposed another condition - to furnish another bank guarantee from the parent covering unspecified potential future tax liabilities - leading to the current impasse.

With the $7.2 billion deal on the verge of closing, given the April deadline, time is running out for the Finnish handset maker to resolve the India dispute. "The writing is on the wall. They (Nokia) 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 sensitivity of the matter.

Some people ET spoke to said that the recent voluntary retirement scheme offered to employees at the plant indicates that Nokia is preparing to scale down its operations, trying to conserve as much cash as possible, as it tries 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 down totally also remains an option, people said.

The two companies had previously said that 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. Nokia has recently said it has received approvals from China, the European Commission, the US Department of Justice and other jurisdictions for the Microsoft deal.

A Nokia spokesperson said the company has been engaging with the government and tax authorities to find a solution. "Post the Supreme Court order, we are still evaluating our options for the Chennai factory. We would not speculate on the future".

Legal experts say that leaving out the plant from the entire equation is possible, and may help push the deal forward.

"This could be a plausible option for Nokia," said Sanjay Sanghvi, partner at law firm Khaitan & Co.

The two companies could explore the option of leaving out the Indian assets from the global transfer for the time being with a condition that such assets be transferred to Microsoft within a certain agreed period, say a year or so. "This could of course impact the value of the deal," Sanghvi added.

At the heart of the matter is a finance ministry notice last March, asking the Helsinki-based company to pay Rs 2,080 crore after the income-tax department said the company evaded taxes on software downloaded on handsets manufactured at the unit in Sriperumbudur, Chennai, since 2006.

In March, when Nokia was supposed to close the deal with Microsoft, the Tamil Nadu government slapped an additional Rs 2,400-crore notice alleging that Nokia India avoided paying taxes on devices sold within India by masking them as exports. Nokia has moved the Madras High Court on the latest dispute.

Read more at:
http://economictimes.indiatimes.com/articleshow/33830793.cms?curpg=2&utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

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Further turmoil for Nokia India, head of Chennai factory Prakash Katama quits
By Vidhya Sivaramakrishnan, ET Bureau | 16 Apr, 2014, 10.10AM IST

http://economictimes.indiatimes.com/tech/hardware/further-turmoil-for-nokia-india-head-of-chennai-factory-prakash-katama-quits/articleshow/33808905.cms