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

Posted by Soulskill on 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.'"

47 of 226 comments (clear)

  1. corruption by BurgEnder · · Score: 5, Insightful

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

    1. Re:corruption by cheater512 · · Score: 2, Insightful

      Does it count as racist that I'm absolutely *shocked* a western company has been dodging taxes?

    2. Re:corruption by Anonymous Coward · · Score: 2, Interesting

      Does it count as racist if I say I am not surprised by this move from the Indian government?

      Probably not. I've had Indians explain that some businesses are hampered by the fact that traveling from one side of the city to the other crosses multiple local tax jurisdictions. Each wanting to collect a tax as goods move across the city.

    3. Re:corruption by Mashiki · · Score: 4, Informative

      Having worked for a company a decade ago, where the Indian government tried to blackmail them for "back taxes" I'm going to hazard out on a line that it's probably not on Nokia's end.

      --
      Om, nomnomnom...
    4. Re:corruption by rmdingler · · Score: 2

      I'm not sure I like your tone.

      --
      Happiness in intelligent people is the rarest thing I know.

      Ernest Hemingway

    5. Re:corruption by Anonymous Coward · · Score: 3, Interesting

      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.

    6. Re:corruption by Frosty+Piss · · Score: 4, Funny

      I'm not sure I like your tone.

      You have a problem with his skin color?

      --
      If you want news from today, you have to come back tomorrow.
    7. Re:corruption by tftp · · Score: 4, Insightful

      You don't need to go farther than California to find an example of the government blackmailing people for "back taxes". Fortunately, this time, the tax-hungry government was stopped in its tracks. However who in India will oppose taxing of a faraway, rich company?

    8. Re: corruption by davidbrit2 · · Score: 2

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

    9. Re:corruption by EdIII · · Score: 4, Interesting

      Sure sounds like it.

      I know corporations are evil little demons when it comes to actually playing on a level playing field in regards to taxes though.

      It can also just as easily be possible.... that Nokia have been dicks for years trying to get around the taxes and India has finally had enough of their shit. An opportune moment? Absolutely. Egregiously So.

      Just playing devils advocate for India here, even considering the massive levels of corruption in their government.

      The only difference between India and the US, is that US politicians are already sufficiently paid to look the other way on taxes. Way too many assholes with their hands in the cookie jar to stop that over a few measly billion.

    10. Re:corruption by sjames · · Score: 4, Funny

      The color's fine, it's just too flabby.

    11. Re:corruption by Ami+Ganguli · · Score: 5, Interesting

      It's not racist. The Indian government is pathetically corrupt. It's truly awful, and goes from the very bottom (police, petty local officials) right to the top. Finland, on the other hand, is one of the least corrupt countries in the world.

      I know nothing about this case, but I'm going to trust the Finns on this one until proven otherwise.

      (Disclosure: I'm a half-Indian who's lived in Finland and done a lot of work with Nokia. I also have business interests in India.)

      --
      It is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail. - Abraham Maslow
    12. Re:corruption by gl4ss · · Score: 4, Insightful

      dodging taxes? 3.4 billion doesn't seem like that really. it sounds more like changing the tax to be 10x of what they were told it would be when they started doing business locally.

      the thing is, they had no way on earth knowing the taxes beforehand. nobody has. so how are you supposed to price the hardware beforehand? even if you ask one state government then another sub-state government is going to claim otherwise since they want the money too.

      it's just another example why big industry is staying officially out of india... and it's hurting india. another option for a company is to bribe everyone continously.

      heck, ikea had to fight over the right to sell meatballs... good news for China, Korea, Taiwan & all though since why bother with spooling up factories in India when they can't make up their minds about the rules? unstability of rules is number one reason why developing countries have hard time attracting serious investment... so the jobs they then get are something that doesn't need long term investment(like hand assembly.).

      --
      world was created 5 seconds before this post as it is.
    13. Re:corruption by Anonymous Coward · · Score: 2, Insightful

      major revolutions have not been done by majorities but rather by minorities using suitable anger of big portions of t he population at some stuff.
      so it is possible. The amount of blood and rolling heads depends on how unified the sides are and big a difference between their forces.

    14. Re:corruption by gl4ss · · Score: 3, Interesting

      Plenty of Indians are racist, usually against what they perceive as of different race of Indian people, the Nepalese or the Chinese though, not that often westerners - but that too.

      and classist, too. even fascist

      they have no intention of getting 3.4 billion.. but threatening with that is what they use to extort money for their parties cause, for their local gov, for their own pockets. you know, like the mob.

      you know, EXACTLY like a 3rd world cop pulling you over and threatening you with huge fines for whatever to get you to pay something on the spot. local taxi cabs then get around that by just having some cash ready to give to the crocodiles when they see them(but unfortunately for nokia, it is illegal for nokia to keep a bribery fund nowadays for that... so they have to see the texas hold 'em to the end).

      --
      world was created 5 seconds before this post as it is.
    15. Re:corruption by ThePhilips · · Score: 2

      it sounds more like changing the tax to be 10x of what they were told it would be when they started doing business locally.

      Actually this story bears stark resemblance to the one I have seen in Brazil. And it is not about corruption or retro-taxing.

      Small company in Sao Paulo (SP) was purchased by a larger company. Eventually, after sucking everything out of the small company, the large company decided to close it, inviting around 25% to relocate to their own office.

      They have actually managed to close the company and lay-offs were ongoing - but then the gov't send them some million Euro tax bill to pay.

      What has happened. Brasil (or only SP?) has provides special conditions to IT companies and start-ups, where they rip lots of benefits, including almost no taxes. To enjoy the benefits gov't requires a long-term commitment and conformance to certain conditions, expressed in the form of a contract with local authorities. Closing the company and laying off people for no good reason constitutes breach of the contract and consequently gov't demands you to pay back for all the benefits the company has enjoyed over the period.

      --
      All hope abandon ye who enter here.
  2. Finally by rmdingler · · Score: 5, Interesting

    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

    1. Re:Finally by Dynedain · · Score: 5, Funny

      poetic irony (n.) Using the phrase "Alas!" instead of "At last!" in a pedantic celebration of correctness.

      --
      I'm out of my mind right now, but feel free to leave a message.....
  3. Re:Announce shutdown of factory ... by ThatsMyNick · · Score: 4, Interesting

    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.

  4. It's not *absolutely* crazy. by Dputiger · · Score: 2

    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.

  5. Perhaps Tata wants to acquire Nokia by Anonymous Coward · · Score: 2, Informative

    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".

  6. "Shakedown" looks very promising by Taco+Cowboy · · Score: 5, Interesting

    ... 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 !
    1. Re:"Shakedown" looks very promising by wiredlogic · · Score: 2

      They're just bribing the right officials to make things work smoothly for them. Nokia is apparently too honest for their own good.

      --
      I am becoming gerund, destroyer of verbs.
    2. Re:"Shakedown" looks very promising by ebno-10db · · Score: 2

      It is like they are trying to drive business to China.

      Or they're being highly protectionist. I'm not sure what the angle would be here. Somebody mentioned Tata buying Nokia factories. The Indian government, for all their supposed openness to global trade, can be very protectionist. They got their initial start in programming when they basically kicked out IBM. Remember, it's ok for India, (or much worse) China, to be highly protectionist, but if the US puts a nickel tariff on something, or questions whether pet food should be poisoned, we're either evil or idiots for interfering with the wonders of free trade.

    3. Re:"Shakedown" looks very promising by icebike · · Score: 2

      More likely they discovered early on that the best Indian Lawyers are a wise investment.
      Never try to do business in a country without hiring a well connected local lawyer.

      --
      Sig Battery depleted. Reverting to safe mode.
  7. Standard Operating Procedure for India. by lemur666 · · Score: 5, Interesting

    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.
    1. Re:Standard Operating Procedure for India. by tlambert · · Score: 2

      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 country; I hear Brazil is pretty favorable to people bringing in jobs these days, they just try to screw you on currency conversion if you happen to use a bank.

  8. Nokia's getting what it deserved. by bstarrfield · · Score: 4, Insightful

    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. */
    1. Re:Nokia's getting what it deserved. by q.kontinuum · · Score: 2

      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 people; 3rd world workers have a right to compete with us.

      You want little environmental regulation?

      You are aware that Nokia won a couple of awards over the past years for their efforts to produce eco-friendly?

      You want to hide from taxes in your home country?

      Now this is ridiculous. The issue at hand is that Nokia did pay the SW tax in their home country, and Indian tax authorities suddenly got it into their head that Nokia should pay taxes for the same transaction in India as well. So exactly the opposite of what you wrote.

      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.

      Where exactly to you see Nokia crying? in your dreams? They defend themselves in court, which seems sensible. They hope for the help of their Government, which would seem sensible if you hadn't ignored the fact that they paid the tax in Finland.

      I like to bash big companies and blame them for all our misfortune just as the next guy, but your collection of platitudes just doesn't fit here. Nokia probably also made lots of mistakes.

      I'm definitely not an advocate of the free market to solve everything - free market mainly means absence or minimization of regulation, which in the end means to let the strongest rule over the weak. I'd prefer a Government which also protects the weaker and creates an environment to encourage the development of polypolies instead of rewarding monopolies.

      --
      Trolling is a art!
  9. what's the basis for the dispute? by belmolis · · Score: 4, Interesting

    None of the articles explains the basis for the Indian government's claims. Does anyone know the basis for this dispute?

    1. Re:what's the basis for the dispute? by Anonymous Coward · · Score: 5, Interesting

      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.

    2. Re:what's the basis for the dispute? by ebno-10db · · Score: 4, Funny

      Finland invaded India?

    3. Re:what's the basis for the dispute? by goddidit · · Score: 2

      What have the Romans ever done for us?

      --
      This .sig is exactly 120 characters long.
    4. Re:what's the basis for the dispute? by q.kontinuum · · Score: 2

      For reference to the cultural illiterate: http://www.youtube.com/watch?v=ExWfh6sGyso :-) (You might have to watch the whole movie to get it into perspective)

      --
      Trolling is a art!
  10. Re:Why wait until now? by saleenS281 · · Score: 4, Insightful

    The same way the debt can increase from $300 million to $3 billion overnight. They think they can get it, and they're corrupt as hell.

  11. Takeover in Jeopardy by musth · · Score: 2

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

  12. You are not a racist, you are ignorant... by bayankaran · · Score: 3, Interesting

    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
    1. Re:You are not a racist, you are ignorant... by Anonymous Coward · · Score: 3, Informative

      What if I say every adult Finn is a closet xenophobe? Will you agree to this generalization? .

      That's pretty spot-on, yes. But most do try to lie about it.

      Taxes are a bit of a taboo subject in Finland, and tax evaders are morally ranked somewhere between murderers and rapists. I'm looking forward to the public lynching of these people.

      (discloser, I'm an adult Finn, and try to lie about my xenophobia to be polite)

    2. Re:You are not a racist, you are ignorant... by Anonymous Coward · · Score: 3, Insightful

      Right. I might sound as a racist fuck, but I have to work with Indians almost every day. Maybe it's just the company not paying enough to get quality indians, but _everything_ they do is somehow wrong. I think I haven't got a single issue handled correctly. In many cases it takes more time to work with Indians than to just do it myself, but because of super stupid corporate politics I can't cut them out. I'd take any business out from there in a heartbeat judging by my own experiences. They have 1 billion people, thay can handle it without foreign businesses.

      About this Nokia thing. Kinda funny how they first owe 300 million, then the week after the sum is 3 billion. Taxes just go up tenfold overnight? As far as I know Nokia claims they paid the taxes to Finland about the things Indina tax authorities are having an issue with ( some software installations or something ). I don't think India actually can stop the Nokia Microsoft deal from happening, they will simply remove said factory from the deal and continue. Maybe Nokia will simply leave India after that, I don't know if they manufactured anything but phones there.

    3. Re:You are not a racist, you are ignorant... by Ami+Ganguli · · Score: 2

      I didn't actually say that every Indian is corrupt, but most are complicit. They might not like the bribes, but they pay them (because they also need to get things done) or they say nothing when others take them (because they don't want to lose their jobs). And there's the problem - the only thing that can change the system is a massive change in attitudes. And it can't be just a few people - it pretty much has to be everybody at once.

      I'm guilty too - I've paid my share of bribes. I don't feel good about it, but I can't afford to be the hero - I need to get stuff done.

      I do know lot of honest, hard-working people in India - I wouldn't bother to try to do business there otherwise. But my dealings with government always leave a bad taste in my mouth.

      --
      It is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail. - Abraham Maslow
  13. Obvious solution: Audit Software licenses. by Bill,+Shooter+of+Bul · · Score: 5, Funny

    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.
    1. Re:Obvious solution: Audit Software licenses. by Bill,+Shooter+of+Bul · · Score: 2

      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.

      --
      Well.. maybe. Or Maybe not. But Definitely not sort of.
  14. Re:Announce shutdown of factory ... by Rich0 · · Score: 4, Insightful

    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...

  15. Shades of the Vodafone case by palemantle · · Score: 3, Interesting

    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

    1. Re:Shades of the Vodafone case by Anonymous Coward · · Score: 5, Informative

      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.

  16. Re:Announce shutdown of factory ... by Art+Challenor · · Score: 3, Insightful
    Wait, where are we talking about?

    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/

  17. Re:Announce shutdown of factory ... by Art+Challenor · · Score: 3, Insightful

    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.