By Prasanta Sahu, R. Jai Krishna and Sven Grundberg 

NEW DELHI--India has ordered a special audit of Nokia Corp.'s accounts in a move that could affect to the Finnish company's plans to sell its devices and services business to Microsoft Corp.

According to Indian tax laws, the government can order what is called a special audit on a private company--usually using an external auditor--if it suspects the firm has hidden income, underpaid taxes or undervalued assets.

The special audit, which might take as long as six months, could complicate Nokia's $7.2 billion deal with Microsoft.

"An external auditor will need to audit the accounts as (the case against Nokia) is very complex," a top tax official told The Wall Street Journal. "The auditor will do a valuation of the company and its transactions."

Nokia confirmed Friday that it had received a special audit request from Indian tax authorities.

"As with all tax discussions in India, Nokia will cooperate with the authorities and, where necessary, defend itself vigorously," a Helsinki-based spokesman said.

Nokia is already facing tax bills in India that might total into the billions of dollars. Its factory in the southern Indian state of Tamil Nadu remains stuck in negotiations with Indian authorities who have blocked it from becoming part of the Microsoft transaction.

The transaction is now expected to be completed before the end of April, a month later than the earlier deadline of March 31, because of regulatory clearances from Asian countries, including India.

Nokia declined to say if the special audit will affect its deal with Microsoft. Instead, a company spokesman referred to statements it reiterated this week that its tax disputes in India won't affect the closing or the material terms of its global deal with Microsoft.

A spokesman for Microsoft said the India audit doesn't affect closing timing of the Nokia deal.

Nokia has already challenged a tax bill related to claiming an allegedly wrongful exemption on software exports, but the Supreme Court of India said it has to pay the taxes, and provide guarantees for any future liabilities, before its factory in Chennai, the capital of Tamil Nadu, can be transferred to Microsoft.

Nokia has resisted making the guarantee because Indian tax authorities want future liabilities and a deposit for those liabilities paid in cash. Future liabilities have been estimated to be in excess of $3.4 billion and the court wants Nokia to pay about $500 million up front.

Nokia's Chennai handset factory employs 8,000 people and produces close to 20 Nokia phone models.

Separately, the Finnish company is also facing a bill from the state government of Tamil Nadu for about $400 million in sales taxes on phones made at its Chennai factory. The handsets were meant for export but the state says they were sold in India. Under Indian investment rules, Nokia is entitled to tax exemptions if it exports handsets made at the Chennai plant.

Nokia has challenged that claim at the Madras High Court at Chennai, which is scheduled to hear the dispute starting April 1.

Shira Ovide contributed to this article.

Write to Prasanta Sahu at prasanta.sahu@wsj.com, R. Jai Krishna at krishna.jai@wsj.com and Sven Grundberg at sven.grundberg@wsj.com

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