Nokia Faces New Headache from Indian Government

Nokia

Nokia (NYSE:NOK) could be facing additional tax complications with the Indian government on the eve of the transfer of its handset business to Microsoft (NASDAQ:MSFT), the Financial Times reports.

Nokia was originally served with a claim for some $375 million by the Indian government earlier this year over payments made by various subsidiaries of the mobile device maker to its parent company. Additionally, the company’s factory in the city of Chennai was raided by the government. Now, there is talk of a future claim being made that would increase the total to $1.1 billion, potentially preventing the transfer of certain Nokia assets in India to Microsoft as part of the sale of the company’s handset business to the tech giant.

So far, Nokia has said that the additional claim is speculative and that the company remains skeptical until formal documentation for the $1.1 billion sum is filed, according to Bloomberg Businessweek. The Indian government has certainly come forth with a lot of talk targeted at companies over the past years, with several big names, like Vodafone (NASDAQ:VOD) and IBM (NASDAQ:IBM), actually ending up being targeted for claims as well. The environment faced by corporations looking to set up shop in India has become less friendly as the threat of tax fines looms larger.

If Nokia’s Chennai plant is not released by the government as part of its investigation, then the plant will not be transferred to Microsoft by the December 12 deadline stipulated in the agreement. This could prove a thorn in the side of both companies.

Most analysts, though, do not expect the Indian government to be able to completely derail the transfer. If all else goes according to plan, representatives of the companies should be able to work out a deal to transfer the Chennai holdings at a later date, when the government’s investigation is concluded. Some have even raised an eyebrow at the timing over the rumors of the additional claims against Nokia.

What Nokia is trying to do is to offer a sum of more than $300 million to the Indian government as a payment to secure itself against the tax liability so that it can transfer the plant. Thus, if the claims turn out to be valid, the government could turn to the money as a source of collateral, rather than to the plant. If such a plan goes through, it would at least allow Nokia’s deal with Microsoft to emerge unscathed from the incident.

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