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Nokia Takeover In Jeopardy Due To Alleged $3.4B Tax Bill In India
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.'"
nothing like a good 'ol shakedown by a government's tax authority
They would still owe taxes. If Nokia ever has to do business in India, they better pay up (Nokia is one of the most popular brands in India btw)
Alas! The first mathematically perfect use of "an order of magnitude". Well done sir, well done.
Happiness in intelligent people is the rarest thing I know.
Ernest Hemingway
The tax is on the value of the factory. The factory is obviously more valuable than the tax liability. Shutting down the factory would have to be a bluff, a very bad one at that.
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.
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...
Never happened. True story.
Sounds like India wants to kill the sale of the handset division to Microsoft, driving Nokia stock even lower, then conveniently an India company will buy Nokia out. Sound Like India politics at its finest
Knowing India as I do, I will not be surprised at all if Tata emerges as the "Knight in the shining armor" rescuing Nokia from the grab of the "dirty Microsoft".
... 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.
Muchas Gracias, Señor Edward Snowden !
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.
Corollary to Hanlon's razor: Any significantly advanced stupidity is indistinguishable from malice.
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.
/* Dang, I can't type that well. */
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.
Politics; n. : A religion whereby man is god.
None of the articles explains the basis for the Indian government's claims. Does anyone know the basis for this dispute?
they should just call off the deal. The price has effectively gone up 50%.
My God can beat up your God. Just kidding...don't take offense. I know there's no God.
It's a game played by the Indian government. Nokia's handset division is to be sold to Microsoft, which has a ton of cash on hand. It's a game worth playing, as Nokia has no way of packing their bag and getting out tomorrow, so does Microsoft. Microsoft wants that handset division as part of its strategy, and the liability can be worked out by Nokia/Microsoft to transfer to Microsoft, which will then work out a deal with the government, which will promise to sweeten via some kind of tax break on the condition that Microsoft invest more in the country. At the end, they will make a join release, saying that each one has made a score, it is good for the consumer, for the shareholders, for the country, for Jesus, for Buhda, for Ganesha, for Annapurna, for Hanuman, and whatever deity you've got. Everyone would be happy, and it would be the end of the story.
It's the same kind of game governments play all over the world.
I'm glad somebody finally knocked that snooty Ken Jennings off his perch.
.. Rupee's or Dollars?
They just want to do it all themselves?
call centers
I doubt that one. It's much easier to find people who speak English well enough, and can even be trained to use American accents, in India than in China. As I understand it, the reason Chinese speakers find it so hard to learn English, and vice versa, is because the languages are so different. Are some of the Indian languages closer to English? Also many Indians, especially those with more educated parents, learn English from a very early age. There are even public (government) schools that are taught in English.
The language barriers are much less dealing with India than China. That helps with programming, engineering, R&D, etc. Manufacturing is a different story, but the ability of many Indians to speak English is a big advantage they have over China when it comes to these things.
There are certain sectors in India which work well. The tax department being one of them. And surprisingly there are honest politicians, policemen, judges and so on. Broadly categorizing India and Indians as corrupt is a weak generalization.
What if I say every adult Finn is a closet xenophobe? Will you agree to this generalization?
Nokia may or may not be liable to this tax. The rule of the land you have to follow. There is a judicial process if you want to take that path to contest. Indians and Indian government need not be blamed if the sale of Nokia is held up due to this issue. It does not matter to us. Blame the consulting idiots who are advising Microsoft and Nokia in this sale for overlooking these issues.
And any comment regarding "India will lose, we will take our business elsewhere" is an empty threat. India is one billion strong - we have one of the biggest middle classes and the largest group of young population in this planet. Take your business elsewhere and you will lose. Ask yourself - where will you take your business - China? Russia? Yes, they are great places as far as I know.
Now, get off my lawn.
Tat Tvam Asi
The Philippines is so much cheaper
That makes a lot more sense than China. AFAIK English is pretty widely spoken in the Philippines.
IIRC, there was some research that showed (suggested?) that if you don't hear some phonemes when you are very young (1-2 years), you can never be good at distinguishing them later. That's the root of the l/r problem.
The real "Libtards" are the Libertarians!
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.
Well.. maybe. Or Maybe not. But Definitely not sort of.
Ok, so you have $10k in a bank account in Peru. You want to transfer the money to your account in the US. The bank says that before you're allowed to move the money you have to pay a $500 tax to the government. So, you propose to just tell the bank to close your account and keep the money?
Sure, Nokia could abandon a factory to save on a much smaller tax bill. They could even burn their own factory to the ground to prove a point. However, it isn't exactly a great business decision.
BTW, this is one of the reasons why companies didn't move all their stuff overseas a generation ago. It wasn't like the pay disparity was any less back then. If you want luxuries like reliable electricity, no hostage taking, no need to bribe the local politician, and no government shakedowns, well, sometimes you have to pay your workers a bit more to go along with that...
Do they actually need that or any factories? Most bean counters won't even want to own their factory.
It is not like contract manufacturers like Foxconn is not making phones and electronics or anything. MS already have someone else churning xbox and other electronics for them in China.
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
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
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.
The report I read was that the neural net which distinguishes phonemes is trained up to the age of around 10-14.
Out of the 110 (approx) (IIRC) human phonemes, most languages use no more than 85 (approx) (IIRC), sometimes far fewer.
The classic Japanese/English "L"/"R" problem is an symptom of this, where for a Japanese person who hasn't been exposed to the "L" sound regularly at a young age, it is mapped to an "R" sound.
Note also, that the single "R" sounds that the Japanese-language person is making instead of "L" and "R" may not be the "R" sounds that the English-language person is hearing. Different "L" and "R" sounds may spoken by Japanese-language person, but the English-language person may only hear them as a single "R" sound. Since there's no common frame of reference, the phoneme corruption could be happening in either or both directions for any phoneme mapping.
I recall reading somewhere else that the French language has three different sounds which map to the English "R" sound. That's my excuse for scraping high-school French, anyway.
There are people who are exceptions to the rule, of course, and there's also the possibility of learning to speak a language correctly by an external feedback loop. All you need is to make different sounds until a person who can hear the difference confirms when the sound is correct, and use that mouth/larynx shape when appropriate. Easy!
If you want luxuries like reliable electricity
It's better than many third world countries but "reliable" is not the word I would apply to the US power grid
no hostage taking
Unless someone, somewhere declares you a terrorist, then they have a spot for you: http://en.wikipedia.org/wiki/Guantanamo_Bay_detention_camp
no need to bribe the local politician
In the US they are called "Campaign Contributions" - functionally identical
and no government shakedowns
Unless you don't cooperate with the NSA - http://www.washingtonpost.com/blogs/the-switch/wp/2013/09/30/a-ceo-who-resisted-nsa-spying-is-out-of-prison-and-he-feels-vindicated-by-snowden-leaks/
well, sometimes you have to pay your workers a bit more to go along with that...
Not really, the tax payers will pick up the slack - http://money.cnn.com/2013/06/04/news/companies/walmart-medicaid/
There were two 'K' sounds in an Indian language used in a study they showed us in Highschool Biology. When taken from the middle of the word they were indistinguishable to my (and implied by the video most American's) ears. They'd play the sound, and one would be followed by a loud and fanciful scene to the right of the child a few seconds later, the other would not.
It was far earlier than 10-14 that the children were no longer able to learn to anticipate the scene to the right, and I want to say it was before they were even particularly effective at communicating (thus seeing if they looked to their right rather than asking what they heard). I want to say it was 4, maybe 5.
Wow, sent an e-mail as suggested when clicking on "use classic" banner, and got a fast response that addressed my msg
Nuclear option is a bad one.
No, just sell the factories and use the money saved on paying workers and that gained from the sale to pay the tax bill.
that wouldn't be enough.if they could have created 3.4 billion by selling the factory they would have sold it to the magical factory buying monkeys long time ago and bought another. it is not a chip fab.
that's what makes it absurd and obvious fishing expedition by some indian mobsters aka politicians/judges. the value of the tax makes no sense in proportion to the value of the business. it's just another bunch of Indians fucking up their country to secure money for their family(doesn't even matter to them if they lose their jobs, that's not the point, the point is to secure some kind of payouts..).
why does nokia have these assembly plants in these random 3rd world countries? absurdly enough usually for tax reasons(but this 3.4billion is really a kick in the face for local production since it's probably 5-10x more than what the import tax savings were, while they were still paying taxes on local workers etc...).
world was created 5 seconds before this post as it is.
Ok, so you have $10k in a bank account in Peru. You want to transfer the money to your account in the US. The bank says that before you're allowed to move the money you have to pay a $500 tax to the government.
The new tax is $3B. The old tax is $300M. The factory is not even worth $300M. Your analogy is silly.
I'm just explaining the post you replied to, which stated, "The tax is on the value of the factory. The factory is obviously more valuable than the tax liability." If that statement is not true, then my explanation of that statement would not be true. I cannot personally vouch for the value of Nokia's holdings in India.
Sure, this is a shakedown, but it isn't like Nokia can just walk away. Most likely they need to bribe the right person, which is how business is often done outside the US/EU.
Look, I'm more annoyed with the civil liberty issues in the US than most, but you're stretching things. The US government probably has only detained a few people indefinitely on US soil in the last decade, and while their treatment is clearly unconstitutional they didn't exactly have clean hands. On the other hand, in quite a few countries out there you run a significant risk of being kidnapped and held for ransom simply for looking like an American. The risks are not comparable.
Ditto for power reliability. Ok, so the US had a big blackout for a few hours 10 years ago, and California had a self-imposed series of blackouts about 15 years ago. I'd also agree that we're really pushing the limits on capacity such that we're at risk of some major problems. However, in many regions in Asia you can count on the power going out almost daily for hours.
I won't claim that Walmart workers are well-treated. However, they certainly are much higher-cost than workers in Asia in absolute terms, which is all the company paying them cares about. There is a big difference between $7/hour and $5/day.
"Don't make jokes off my jokes."
Happiness in intelligent people is the rarest thing I know.
Ernest Hemingway
I believe the factory is there due to India's huge import tax. There probably isn't a Foxconn type entity in India to contract the manufacturing to.
gut the sucker and burn it down, let India collect on the 6-buck value of the land. still the extortionists.
if this is supposed to be a new economy, how come they still want my old fashioned money?
Is it getting better or worse? If you go back a decade or so some of the problems listed didn't exist and things like required bribes (campaign contributions) from businesses were less of an issue. Changes like "Citizen's United", the Iraq war and increased domestic surveillance and big corporations dumping risk on the taxpayer ("too big to fail") which is coupled with the amount of corporate money in politics are all regressions. As is "trickle down economics" which, if you look at the 30 year experiment of lowering taxes for the rich and cutting social programs has not had the effect of raising the standard of living of all members of society - a "rising tide" did not lift all boat is a fact whatever your ideology. Then you have societal problems like school, theater, etc. shooting and gun violence that rivals many third world countries. At the minute there aren't many high-profile kidnappings, but I suspect that could change.
So no, the problems are not as bad, but continuing on the path we're on will get us there.
" The US government probably has only detained a few people indefinitely on US soil in the last decade, and while their treatment is clearly unconstitutional they didn't exactly have clean hands"
'
"Probably" means you don't know what you're talking about. The fact that the government has gotten away with it more that once proves there's a severe problem for something that by our own laws shouldn't happen at all. The numbers are irrelevant if it's you being abused. That's one of the problems in this country a culture of "if it's not me I don't care" and "better to ask forgiveness than ask permission".
It's Finland... I guess they are west, sort of. West of Russia. Then again everything is except Canada and the US, does that make more sense?
Well, my whole point was that you were less likely to get kidnapped on US soil (or in the EU) than in some random third world country. So, I'd consider it relevant whether the US does the aforementioned abductions on US soil or not. You're more likely to end up in Gitmo if you're outside the US than in it.
My post had nothing to do with whether this practice is right or wrong.
"Probably" means you don't know what you're talking about.
No, it simply means that I don't make wild assertions without fully checking the facts, like telling you that you don't know what you're talking about.
I'm only aware of one or two cases in the last decade where somebody might have gotten indefinitely detained on US soil (the shoe bomber comes to mind). I'm not sure there are actually any cases of actual indefinite detentions. I think the US government has been charging anybody caught on US soil. However, I could be wrong.
If I am wrong, well, you could be helpful and provide the stats.
The fact is that you're FAR more likely to get kidnapped if you go visit someplace in South America than you are likely to end up in Gitmo if you go visit Chicago. In fact, I'd say you're probably more likely to end up in Gitmo if you go to South America than if you go to the US, because the US uses Gitmo to house people caught outside the US to avoid introducing them into the US justice system.
I never claimed that Nokia had assets worth $3.6B in India. My intent was simply to explain that if the parent post's assertion that the tax was based on the factory value was true, then Nokia really couldn't just walk away. I was faulting the deductive logic of the post I replied to, not affirming the premises the argument was based upon.
Sure, Nokia could abandon a factory to save on a much smaller tax bill. They could even burn their own factory to the ground to prove a point. However, it isn't exactly a great business decision.
Or maybe it is, if you look at it from a long term perspective? Business generally does go along with corruption, so long as it's predictable and stable (i.e. you pay $X on a regular basis and that's that). If Indian government can get away with this kind of shakedown once, then 1) they may try it again later, and 2) some other government might decide that they want their cut, too.
Want to? They do it openly. It's in the license agreement for telecoms. The room & equipment have to be provided at the telco's expense. As well as the A/C, phone lines and other things.
Founder & COO, Hayai India (hayai.in) / USA (hayaibroadband.com)
Indians most corrupt while doing business abroad.
http://business.rediff.com/report/2009/sep/24/indians-among-most-corrupt-while-doing-business-abroad.htm
Casteism