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Businesses The Almighty Buck Microsoft

Nokia Takeover In Jeopardy Due To Alleged $3.4B Tax Bill In India 226

Posted by Soulskill
from the desperately-seeking-a-loophole dept.
New submitter Snotboble_ writes "The government of India apparently thinks Nokia owes a lot of taxes. They originally told Nokia that the company owed around $340 million, but now reports suggest it could be an order of magnitude higher. Such a large liability would have consequences for Nokia's sale of its handset division to Microsoft. From the article: 'Nokia Corp.'s tax troubles in India worsened Tuesday as local authorities ratcheted up the amount of tax they say the Finnish company may owe to more than $3 billion. Nokia's battle to defend itself from the claims—one of the latest surprise tax bills slapped on big foreign companies in India—could affect its plans to sell its handset division to Microsoft Corp. as the phone company's factory in India is part of the $7 billion deal.'"
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Nokia Takeover In Jeopardy Due To Alleged $3.4B Tax Bill In India

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  • corruption (Score:5, Insightful)

    by BurgEnder (698732) on Tuesday December 10, 2013 @08:05PM (#45656687)

    nothing like a good 'ol shakedown by a government's tax authority

    • Re: (Score:3, Interesting)

      by Anonymous Coward

      MSFT can't afford to back out of the deal. They are in desperate need of Nokia's support for Windows Phone 8. Without the merger, any slim hope of gaining a foothold in mobile is dashed. MSFT would have to admit defeat. That won't happen, so MSFT will use its political US clout to hammer the price tag down to something "reasonable" and then write the check. Even if the price tag didn't go down, they would write the check. They can't afford to not do so. It would be suicide.

      • And MS has had loads of practice throwing good money after bad, so what's another go at it here and there?
      • by icebike (68054)

        Nonsense, there at least 6 manufacturers making windows phones. They don't need to manufacturer their own.
        But if they want to, They could buy HTC out of petty cash.

        • by rtb61 (674572)

          It seems the Nokia purchase is not about making mobile phones so much as turning Nokia into a patent troll to cripple other companies with M$ buying an escape clause from that behaviour by buying the mobile phone manufacturing decision of Nokia. Now as this is all based upon stupid shallow Ballmer thinking, M$ has refused to accept the idea that all other companies will blame M$ for Nokia's behaviour and cimply direct the nuclear patents of mass destruction on M$ in retaliation for Nokia's behaviour.

      • by shentino (1139071)

        And maybe indian officials know this and smell a nice chance to extort some money out of the situation by taking advantage of microsoft's desperation

    • gut the sucker and burn it down, let India collect on the 6-buck value of the land. still the extortionists.

  • Finally (Score:5, Interesting)

    by rmdingler (1955220) on Tuesday December 10, 2013 @08:21PM (#45656781)
    Alas! The first mathematically perfect use of "an order of magnitude". Well done sir, well done.
  • by Dputiger (561114) on Tuesday December 10, 2013 @08:28PM (#45656837)

    According to records, Nokia did about $4B in business in India in 2010 and 2011, but saw 2012 revenue fall about 23%. Still, that's a fairly large chunk of change. If their business from 2006 - 2010 was strong as well, I guess it's possible that the company owes about $3.4B in tax over that time period.

    Thing is, they'd have had to be basically paying no tax at all to rack up that kind of bill. And since we can assume Nokia isn't stupid, it seems a lot more like a shakedown.

    • by Taco Cowboy (5327) on Tuesday December 10, 2013 @08:45PM (#45656945) Journal

      ... it seems a lot more like a shakedown ...

      My company used to have 4 offices in India. Now we have only one.

      Why ?

      It's not that we don't like to do business with the Indians, it's the government that we can't deal with.

      They are worse than the Mafioso.

      They can turn the rules around overnight and demand the ransom, and they can do it in a totally legal manner.

      The longer the Indian government behaving like this the worse their reputation gonna be - and the less the multinationals will be willing to invest in India.

      • by Rich0 (548339)

        They can turn the rules around overnight and demand the ransom, and they can do it in a totally legal manner.

        Sure, but that isn't saying much. The de facto definition of legal is whatever the prevailing government says it is, anywhere.

      • You should teach them a lesson by moving the entire business unit to a a western country that exhibits none of those problems - like Venezuela!

      • by mjwx (966435)

        ... it seems a lot more like a shakedown ...

        My company used to have 4 offices in India. Now we have only one.

        Why ?

        It's not that we don't like to do business with the Indians, it's the government that we can't deal with.

        They are worse than the Mafioso.

        They can turn the rules around overnight and demand the ransom, and they can do it in a totally legal manner.

        The longer the Indian government behaving like this the worse their reputation gonna be - and the less the multinationals will be willing to invest in India.

        All third world nations are like this, same in the Philippines, Thailand, China or Dominican Republic.

        It's not an Indian specific trait. However companies are still willing to do business with them because whilst they might ask for $3 million, they'll settle for $300,000.

        As someone who's also had to deal with local politicians in places like this, it is a complete pain in the arse.

      • Its like this in a LOT of developing countries. Corruption is just business as usual, government makes things up as they go along, noone knows wtf is happening from moment to moment. Thats why they are developing countries and in arrested development at that. You might call them 'retarded countries'

      • by shentino (1139071)

        it's easy to be legal if you're the one making the law.

  • I know if someone owed me $3B, I'd be getting on top of that right away.

    How could any entity allow any valid debit to escalate to such a large amount before calling it in?

    Doesn't sound right to me...

  • by lemur666 (313121) on Tuesday December 10, 2013 @08:52PM (#45656977)

    I worked at a large multinational that was slated to be acquired by a larger multinational.

    Then, mid-way through the process came the "Oh no! India wants billions in 'back taxes' due to the sale!"

    The solution was that rather than merging the two companies (triggering the giant tax bill), the Indian Development Center was kept as the last remnant of the old multinational and was now considered a "wholly owned subsidiary" of the buying multinational. Apparently the lack of a formal merger of just the portion of the company based out of India negated the tax bill somehow.

    So

    a) This is nothing more than the standard shakedown the government of India does whenever there's a merger of giants like this.
    b) It can also be avoided by some rather facile legal trickery.

    It strikes me as foolish both to make such huge claims of taxes owed when a merger like this occurs and to make those taxes so easy to avoid.

    • the Indian Development Center was kept as the last remnant of the old multinational

      Yeah, if Microsoft thinks that Nokia is worth $6.5B and India thinks Microsoft would owe it $3.5B in taxes, then Microsoft would have to conclude (assuming it can't be resolved for $2M in bribes) that abandoning the India unit (sell off the assets, let the debt go into bankruptcy) is the only financially feasible move. They can always move back in as a new business unit out of the Microsoft office next week.

    • by tlambert (566799)

      The solution was that rather than merging the two companies (triggering the giant tax bill), the Indian Development Center was kept as the last remnant of the old multinational and was now considered a "wholly owned subsidiary" of the buying multinational. Apparently the lack of a formal merger of just the portion of the company based out of India negated the tax bill somehow.

      Yeah, this is exactly the solution I would have suggested.

      My second choice would be to send all 8,000 workers at the Chennai plant a letter explaining which court was at fault for them losing their paychecks this month by forcing them to be furloughed, and which might be responsible for them losing their jobs permanently.

      My third choice would be to just close the plant and let them seize the thing, assuming it's tooling is at least 3 years out of date, it's easier to open a new one the same size in another

  • by bstarrfield (761726) on Tuesday December 10, 2013 @08:56PM (#45657001)

    You want cheap labor?

    You want little environmental regulation?

    You want to hide from taxes in your home country?

    Then build in the developing world. But don't cry when the developing world's lack of rules and regulations bite you in the ass with sudden "fees", "taxes", and other sundry costs. You chose to leave your home country to enhance shareholder profits. Surprise, the rest of the world doesn't have to operate according to your shareholder's profit motive.

    • by sjames (1099)

      This. Internationals don't seem to mind operating under foreign laws when they get to avoid minimum wage, benefits, etc. Perhaps they should have considered the downside.

    • You want cheap labor?

      How about "you want to produce where you sell"? Or "you want developing countries to ... well ... *develop*"? I see it might be my disadvantage as an employee when companies move their production to other countries, but as a customer I'm happy when they find locations to lower production costs, making the goods more affordable for me. And thinking about fairness, I think if one of the biggest markets is in India , it is also fair to produce there. Being born in a western culture doesn't make us better peopl

  • Imagine the world's surprise if India began charging the same hourly rates for it's workers as Western countries charge for theirs. So not only does it appear that Nokia used Indians for cheap labor, they're also trying to scam the government. The government of India is probably the most corrupt in the world (seriously, bribery is a part of the system there, but rather than call it "lobbying" they actually call it "bribery" and care not what anyone thinks about it), and are no one to fuck with.
  • by belmolis (702863) <billposer AT alum DOT mit DOT edu> on Tuesday December 10, 2013 @09:06PM (#45657069) Homepage
    None of the articles explains the basis for the Indian government's claims. Does anyone know the basis for this dispute?
    • by Anonymous Coward on Tuesday December 10, 2013 @09:31PM (#45657219)

      I've been following this pretty closely, since I have a large position in NOK stock which I initiated about the time this news started percolating. You can get most of the story via following the links in the comment sections at seeking alpha (search for "nok", then look in news and alerts). This is not new, and has been going on for over a year, and is complete BS. NOK was in compliance with the laws when the work was done, then India changed the tax laws (and made the changes retroactive), and now expect NOK to pay. NOK is a trial balloon, and if they get away with it, there will be many other western corporations hit by this same 3rd-world silliness. A large oil company was also shaken down in a similar manner (forgot which); they settled for much less than $3.4B.

      Even if India somehow wins here, I don't believe this won't affect NOK or MSFT at all. If this goes through, and NOK have to pay these taxes in India, which is highly unlikely, then they'll file an amendment on taxes they have paid to Finland for the amount they have to pay to India. The end result if India wins will be a massive loss in western investment for India, significant misery for the Indian people affected by the Western pullout, and a miniscule amount of additional tax revenue.

    • "Hey, you've got a lot of money. GIve us some of it."

    • by SEE (7681)

      The basis is that Nokia is a bunch of idiots that actually tried to do manufacturing in India, showing all the judgment they did when they went with Windows Phone as a platform.

      See, India's intelligentsia, by and large, doesn't like manufacturing. It might be necessary to some degree, but, offered a chance to replicate Taiwan or China's success by starting with cheap manufacturing, they'd decline. They want to jump straight ahead to a service/software economy via education rather than pass through an inte

  • I'm glad somebody finally knocked that snooty Ken Jennings off his perch.

  • .. Rupee's or Dollars?
  • by Bill, Shooter of Bul (629286) on Tuesday December 10, 2013 @10:39PM (#45657587) Journal

    Just take a survey of all Indian government software licenses. Given the expense and the insanity involved in tracking MS licenses, I'm sure that they could be found to owe at least 3.4 Billion in Licensing and penalty costs.

    • But they can quote some law that may let them slide it. Or at least say fine it must work Through OUR Court system.

      • Its Microsoft, the company that bled its competitors to death while beating them mercilessly with their own severed appendages during the 90's. I'm sure they just need to unleash their inner bastards and they'll be fine.

  • by palemantle (1007299) on Tuesday December 10, 2013 @11:36PM (#45657901)
    This government tried something similar against Vodafone in 2012 but got smacked down, first by the Supreme Court, and then by the Shome committe. The Vodafone case was quite similar because that too involved an M&A scenario and the government was claiming retroactive effect for some new tax laws.

    Vodafone case details:
    http://www.thehindu.com/business/companies/vodafone-wins-rs-11000-cr-tax-case-in-supreme-court/article2817238.ece [thehindu.com]

    I suspect something similar will happen here and Nokia will settle for a significantly lower amount.

    More details on the Nokia case:
    http://www.thehindu.com/business/nokia-owes-rs21153-cr-it-dept-tells-delhi-hc/article5440948.ece [thehindu.com]
    • by Anonymous Coward on Wednesday December 11, 2013 @02:30AM (#45658497)

      by your links it is not the same at all. The Vodafone case had the government contending that even though the sale occurred between 2 foreign entities. the asset was Indian therefore liable to tax in India. The Government lost the case but changed the law retroactively to apply for all transactions including the vodafone one. While this is bad for business it is legally sound. Every government makes laws that apply retroactively including the U.S. government.

      In the Nokia case, the company routed all the profits out of India as "royalty payments" and did not pay tax on them over a period of seven years. In addition they are claiming Tax free status (due to their being part of Special Economic Zone) that claim is also not valid.

      Not all $3.4B is tax, significant portion of it is penalties for offending over 7 years. Basically they tried legal trickery to maintain their cash flows when things are going bad business wise and now trying to dump it on MSFT.

      Indian Government is actually doing good here, if they allow the sale to go forward then MSFT becomes liable, Like it happened in the vodafone case, instead they are ensuring NOK clears the dues, so MSFT is not in for any nasty surprises.

  • Just state in the merger contract that any tax liabilities owed by Nokia are the responsibility of Nokia and do not follow the Indian factory to Microsoft.
    Its Nokia that owe any taxes and the sale of the Indian factory to Microsoft shouldn't mean that somehow the taxes owed go with it.

    • by gl4ss (559668)

      I don't think that you quite understand the distinction of buying assets of a company vs. buying a company.

      the real legal problem is that the taxes were created retroactively... but hey, if they want to create chilling effects for companies then go ahead..

      Though I guess it makes certain twisted logic that they could change the merger contract after it has gone into effect if the Indian government is trying to prop up retroactive taxes to the tune of all profits from last couple of years.

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