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