By R. Jai Krishna
NEW DELHI--India's top court dismissed Nokia Corp.'s recent
appeal of a lower court order related to a continuing tax dispute
that has cast a shadow over the Finnish company's $7.5 billion deal
to sell its handset business to Microsoft Corp.
Nokia had asked India's Supreme Court to reverse a December
ruling by another court that it saw as unfavorable. While that
court had ordered tax authorities to unfreeze Nokia's handset
factory in Chennai, it ordered the company to make a guarantee
against any future tax liabilities.
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.
The Supreme Court Friday declined to reverse that ruling.
As a result, the factory--which is critical to the smartphone
business Microsoft is purchasing--remains frozen.
Company officials couldn't immediately comment on the decision.
Indian tax authorities couldn't immediately be reached for
comment.
Nokia has said the Indian tax dispute won't affect the timetable
of the Microsoft deal, which is slated to close by the end of
March. The 8,000-employee factory churns out millions of devices
annually and builds 20 different models, but if it remains frozen
by tax authorities it cannot be immediately transferred to
Microsoft.
In that case, Nokia would have to make phones in India for
Microsoft on a contract basis.
The dispute with Indian authorities dates back to a EUR250
million ($346 million) tax claim against Nokia, mainly relating to
taxes that the authority said the Finnish company avoided by
wrongfully claiming an exemption on software exports. The total tax
bill also includes claims that the tax authority has yet to
make.
On Friday, the Supreme Court of India asked Nokia to pay the
earlier tax demand and provide a deposit on its guarantee for
future tax liabilities 35 billion rupees ($570 million), although
liabilities could be higher.
Nokia needs to make the payments to get the factory
unfrozen.
Juhana Rossi in Helsinki contributed to this article
Write to R. Jai Krishna at krishna.jai@wsj.com
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