Nokia Agrees to Pay Part of 30bn Rupee Tax Demand from India to Ensure Smooth Transaction with Microsoft

Finnish mobile phone maker Nokia will partly pay a tax demand from Indian authorities, as the company seeks to unfreeze a factory in the country to ensure smooth sale of its devices and services business to Microsoft.

India's Economic Times reported that Nokia offered to pay up a part of the 30bn rupee (€355m, $478m, £296m) demand from India's tax department, which had earlier frozen the handset maker's assets in India.

The officials froze Nokia's bank accounts and a factory in the south Indian city of Chennai after the company announced its $7.3bn deal with Microsoft.

The move was to ensure the company had sufficient funds to meet the tax liability. Nokia has been in disagreement with the Indian authorities over an income tax bill. The officials claim the handset maker evaded tax through royalty payments to its Finland-based parent for downloading software on the mobile devices produced in India.

In order to revoke the freeze, Nokia filed a case in the Delhi High Court. The court lifted the freeze on the company's bank accounts, but the freeze on the factory remained. The court will hear the case again on 28 November.

"Nokia can confirm it has gone to the Delhi High Court on Thursday (21 November) to seek a revocation of the asset freeze requested by Indian tax authorities in September on its Indian factory assets," the company's spokesperson told reporters.

"This is the latest step taken by the company as it seeks a fair resolution with tax officials over issues that first emerged in January, and Nokia is now pursuing this action as it prepares to sell substantially all of its Devices & Services business to Microsoft".

Sale to Microsoft

On 19 November, the majority of Nokia shareholders approved the sale of substantially all of Nokia's Devices & Services business to Microsoft.

The acquisition is expected to be completed during the first quarter of 2014 when Microsoft will assume control of the development and manufacture of all future Lumia and Asha devices.

Nokia is required to resolve the Indian factory case by 12 December in order to transfer it to Microsoft as an asset.

"If, however, the freeze continues, Nokia must prepare for the eventuality that the Indian factory assets do not transfer to Microsoft. This would create regrettable uncertainty at its Chennai facility, as this is an industry where quick decisions are essential to success," Nokia said in a statement.

Nevertheless, the litigation will not affect the deal with Microsoft. Nokia will operate the plant as a contract manufacturer for Microsoft if the issue is not resolved on time, sources close to the company told Reuters.