Tamil Nadu govt taps Foxconn to revive Nokia unit as tax row nears end

The Tamil Nadu government has initiated talks with Taiwanese electronics contract manufacturer Foxconn to revive Nokia’s facility near Chennai, with the Finland-based mobile phone maker working towards settling an income-tax claim.

According to Bloomberg, Nokia will pay $241.4 million to the government for settling the case out of court — a move that will bring to end a five-year dispute over an original $602.3-million tax demand through a mutual agreement procedure. The one-time settlement, in accordance to the India-Finland double tax avoidance agreement, is a marked departure from the Indian tax authority's pattern of drawing foreign multinationals like Google and Vodafone group into long litigation over large tax demands, according to Bloomberg Tax.

Nokia has said it has no further update on the issue and the statement it issued earlier remains the same. On April 20, the firm had said it was hopeful of resolving the issue relatively soon in cooperation with authorities in India.

Tamil Nadu Industries Minister M C Sampath confirmed they were in touch with Foxconn India and their headquarters in Taiwan. 

Foxconn already has operations in the state and it recently set up manufacturing operations for Chinese brand Xiaomi. Foxconn’s existing facility provides livelihood to around 6,000 people. If Nokia's facility is revived, another 25,000 to 30,000 people will get jobs. Sampath said the state was taking all necessary steps to help Foxconn revive Nokia’s facility. “Foxconn is interested in reviving the Nokia plant. The Nokia unit is their neighbour and houses a lot of manufacturing capabilities for global electronic majors. It will be fit and appropriate if they are able to resume operations at the plant,” said a government official.

When Nokia's unit was shut in 2014, 15,000 direct employees lost their jobs. HTC and Essar showed interest in the facility but did not pursue the matter later.

An e-mail to Foxconn's India head Josh Foulger did not elicit a reply. “Earlier this year, Nokia engaged with a buyer interested in purchasing production machinery. We worked with respective authorities and secured necessary permissions for executing the sale,” a Nokia official said, adding the company remains open to discussions on the sale of the remaining assets, including the Nokia building.

Some former employees would like to rejoin if the salary package is at par with industry standards. "I have started a business but my experience is in mobile manufacturing. Not many have settled but are doing one job or the other. It has been almost four years," said Divakar, one of the last few employees to accept the severance package offered by Nokia's in 2014-15.

The I-T department had put a freeze order on Nokia's assets in connection with the tax dispute. After this, the state slapped a tax demand of around Rs 24 billion. Microsoft had acquired Nokia's global devices and services business, including its India assets, for $7.2 billion in April 2015. But due to the tax disputes, Microsoft kept the Tamil Nadu facility out of its plans.

The background to the I-T department's move was a Rs 210-billion dispute. In between, Nokia sold its mobile handset business to Microsoft and suspended operations at the Tamil Nadu facility in November 2014. After Nokia shut the unit, almost all ancilliary companies to it (Foxconn was one) stopped operations in the area.

How the tax battle played out

• 2013:  IT department survey’s Nokia Chennai and Gurgaon premises and demands tax of around Rs 25 billion from Nokia India on royalty payments made to its parent company in Finland since 2006 

 

• Sep ‘13:  IT department freezes Nokia’s assets and accounts; Nokia moves to Delhi High Court but Delhi HC unfreezes Nokia’s accounts but attachment of other fixed assets continued. Same month $7.44 billion Nokia – Microsoft deal announced

 

• Dec ‘13:  HC unfreezes Chennai assets and allows Nokia to sell the plant to MS with subject condition of Rs 22.50 billion or higher amount to be put by Nokia India into an ESCROW account

 

• Feb ‘14:  Nokia moves to Supreme Court seeking smooth transfer of assets and waiver of conditions but SC dismisses Nokia’s appeal and directs them to HC judgment, TN tax department sent a notice to Nokia for Rs 24 billion sales tax

 

• Apr ‘14:  VRS was offered to employees and Nokia- MS transaction closed leaving behind Chennai factory

 

• Nov 1,'14: Company suspends operations at Chennai factory

 

• Jan ‘15: Tamil Nadu Government reduced tax claim to Rs 9.12 billion from Rs 24 billion

 

• Five year IT dispute ends after Nokia settles the tax dispute with the Indian government by settling $241.4 million towards IT Department tax claim 

 

• TN Govt reaches out to Foxconn to revive Nokia facility