Slashdot Mirror

← Back to Stories (view on slashdot.org)

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.'"

29 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 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...
    2. 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.

    3. 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.
    4. 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?

    5. 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.

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

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

    7. 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
    8. 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.
    9. 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.
  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. "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 !
  5. 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.
  6. 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. */
  7. 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?

  8. 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.

  9. 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.

  10. 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.
  11. 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...

  12. 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.

  13. 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/

  14. 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.