Nokia cleared to sell Indian factory to Microsoft

Nokia's fixed assets in India had been frozen because of a tax dispute

Nokia has obtained permission to sell its Indian handset factory after it agreed to deposit funds as security until a dispute with the country's tax authorities is resolved.

The Indian government had frozen Nokia's fixed assets in the country because of the dispute over taxes for mobile phone software licenses, potentially interfering with Microsoft's acquisition of the company's phone business.

Microsoft said in September it plans to acquire Nokia's Devices & Services business, which includes the smartphone and mobile phones businesses, for over US$7 billion.

Nokia India officials insisted that the acquisition would go through as scheduled by the first quarter of 2014. If the court had not allowed the unfreezing of the asset, the company had a contingency plan that the factory in Chennai in south India would operate as a contract manufacturer to Microsoft after the merger, according to a source.

The Delhi High Court on Thursday agreed to unfreeze Nokia's assets in India after the company offered to keep a security of about US$365 million. In October, the court ordered the Income Tax Department to release bank accounts held by Nokia, but allowed the freeze on the factory in connection with a $331 million demand from tax authorities.

The factory in Chennai employs nearly 7,000 staff and has continued to make handsets meanwhile.

A number of technology companies have tax disputes in India, which has complex tax rules. Vodafone has a long-standing dispute with Indian authorities for not withholding tax when buying a 67 percent stake in its Indian operation from Hutchison Telecommunications for $11 billion in 2007.

Nokia did not immediately comment on the order.

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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