Nokia Corp. said Tuesday it will suspend manufacturing at its
cellphone factory in India after a lengthy dispute with the
country's tax authorities--a setback as India embarks on a
high-profile campaign to woo foreign investment.
The tax battle prevented Nokia from selling the plant--once one
of the Finnish company's largest factories, employing as many as
8,000 people--to Microsoft Corp. along with the rest of its handset
business earlier this year.
Operations at the factory in Chennai in southern India will be
halted on Nov. 1, Nokia said.
Nokia's decision comes as India's new prime minister, Narendra
Modi, is trying to revive interest among foreign investors in
Asia's third-largest economy, which has a reputation as a tough
place to do business.
Mr. Modi was elected this spring after pledging to get the
economy moving again and has taken steps to cut red tape and open
the country's doors wider to trade and investment.
As part of an effort to persuade foreign executives to make
bigger bets on India, Mr. Modi to great fanfare last month launched
a campaign called "Make in India." On recent visits to Japan and
the U.S., he met with corporate chiefs.
India wants to attract billions in investments to build
manufacturing industries and provide jobs and better lives for its
population of more than 1.2 billion people.
One hurdle, investors say, has been a lack of predictability on
tax issues.
In the case of Nokia, India's tax department says the company
wrongfully claimed tax exemptions on software exports. Nokia
disputes the claim and has sought international arbitration to
resolve the issue.
"Unfortunately, the continuing asset freeze imposed by [India's]
tax department prevents Nokia from exploring potential
opportunities for the transfer of the factory to a successor,"
Nokia said in a statement.
Vodafone Group PLC also has been stuck for years in
international arbitration to resolve a multibillion-dollar tax
dispute with India.
Indian tax authorities slapped Vodafone with a $2 billion bill
on the company's 2007 purchase of a controlling stake in an Indian
phone company. India's highest court said in 2012 that Vodafone
didn't owe taxes on the deal, but Parliament later passed a
retroactive law to impose them.
Prime Minister Modi's party pledged during the election campaign
to end what it called "tax terrorism." But his administration has
said the government retains the right to impose taxes
retroactively.
Write to Sven Grundberg at sven.grundberg@wsj.com and Eric
Bellman at eric.bellman@wsj.com
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