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