India puts Nokia assets on ice in tax tussle

A court released only some of the assets frozen such as bank accounts

The Indian government has stepped up its squabble with Nokia over taxes and has frozen some of its assets in the country until the issue is resolved.

Nokia's factory in India, which continues to produce mobile phones, is among the assets that local income tax authorities have frozen. Their move prevents ownership from being transferred to Microsoft as part of its acquisition of the Finnish company, and may be linked to the authorities' concern that collecting the tax could be harder once the deal closes, sources said. The tax department could not immediately be reached for comment.

The Delhi High Court ordered the Income Tax Department to release bank accounts held by Nokia, but continued the freeze on the factory in connection with a US$331 million demand from tax authorities over taxes for mobile phone software licenses.

The freezing of the immovable assets prevents them from being sold, a spokeswoman for Nokia said Tuesday. But production continues at the factory in Chennai in south India. "It is business as usual for us," she added.

"We have sufficient assets in India to meet our tax obligations, and we still expect the transaction with Microsoft to close in Q1 2014," Nokia said in a statement.

"We are now working closely with the tax authorities to ensure that the parties will find a comprehensive solution to the remaining open issues, and discussions have been constructive," it added.

Nokia said in February that it filed letters of objection in India to protest actions by the income tax authorities, including a raid on its factory, which it claimed ran counter to domestic laws and international standards.

A number of technology companies have ongoing tax disputes in India, sometimes arising from the interpretation of the country's complex laws. Vodafone, for example, has a dispute for not withholding tax when buying a 67 percent stake in its Indian operation from Hutchison Telecommunications for $11 billion in 2007.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com

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