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 an earlier
ruling by another court that it saw as unfavorable. While that
court had ordered tax authorities to revoke the freeze on the
assets of 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 on Friday declined to reverse that ruling.
As a result, the factory, which is critical to the smartphone
business Microsoft is purchasing, remains frozen.
"Nokia is disappointed by today's decision," the company said in
an emailed statement. It said an offer it made to resolve the
solution is "fair" for all sides.
"Nokia regrets the anxiety this extended legal process has
caused its employees" and "will now consider its next steps. It
will not comment further at this point."
An Indian tax official declined to elaborate on the decision
beyond what the court said.
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 not yet
made.
On Friday, the Supreme Court asked Nokia to pay the earlier tax
demand and provide a deposit on its guarantee for future tax
liabilities of 35 billion rupees ($570 million), although
liabilities could be higher. Nokia needs to make the payments to
get the factory unfrozen.
Juhana Rossi and Prasantsa Sahu contributed to this article.
Write to R. Jai Krishna at krishna.jai@wsj.com
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