31st Oct, 2014 was the last operational day for Nokia’s plant in India and the 220 acres plant area is now referred as the ghost of Sriperumbudur. Milestones: April, 2005 Nokia signed MOU to set up a plant in the Sriperumbudur Special Economic Zone, (50 km from Chennai) March, 2006 The facility was inaugurated by Finland Prime Minister and Nokia Chairman April, 2007 ‘Made India’ stamped on Nokia phones irritated Pakistan and they started buying Nokia phones manufactured from other countries at a higher price August, 2007 Sonia, Manmohan, Maran, Chidambaram and other central ministers visited this plant and spent time with workers December, 2007 Market value crossed $150 billion with more than 60% worldwide share of mobile phone market. Rated among top five most valuable brand in the world (only one outside USA and the fastest growing) June, 2009 Nokia India plant become world’s largest handset manufacturing facility and Nokia also became largest MNC in India May, 2011 500 millionth phone was produced from TN plant. This phone was e-auctioned and the winner also received an opportunity to watch an IPL match with the companys brand ambassador ShahRukh Khan August, 2011 Google bought Motorola mobility at $12.5 billion, at that point Nokia was valued between $30-40 billion October, 2011 Nokia launched first commercially successful windows powered Lumia range June, 2012 Rumored that both Microsoft (front runner) and Samsung are in race of buying Nokia in about $20 billion Jan, 2013 Indian tax authorities raided Nokia India facility. They alleged that since 2005 Nokia India had remitted $3.3 billion as software payment to Nokia Finland and recorded these payments as raw material (attracts 0% TDS), but it should be reported as royalty payment with 10% TDS. So made an initial demand for $330 Million as tax due was made. Matter was disputed in the court September, 2013 Microsoft announces plan to buy Nokia for $ 7.2 Billion December, 2013 Nokia, in desperation to sell their business and settle legal liability, offered one time settlement of $500 Million. After knowing of Nokia’s offer, Indian tax authorities increased the tax liability to $ 3.5 billion, (mainly on interest and penalties) March, 2014 Tamilnadu state (under Jayalalithaa’s leadership) slapped $ 330 million VAT demand. Charged Nokia India for not meeting minimum export commitment and alleged that all phones manufactured in this plant were sold in the domestic market April, 2014 Nokia was bought by Microsoft. As the Indian tax liability was unsettled and huge, so the deal excluded TN plant October, 2014 Nokia plant in TN has been shut down. Plant’s asset are now under Central Board of Direct Taxes (CBDT) Nokia’s claim Followed international accounting standard on treatment of software (seems similar practice followed in their plants located in other countries). Why should Indian accounting standards be different? Mobile software is not listed in “Royalty definition” under Indian law and Double Taxation avoidance agreement between India and Finland. Wants the case to be transferred to United Nations Commission on International trade law (UNCITRAL). Why did Indian tax agencies denied? Despite strongly disagreeing on accounting standard on treatment of software as raw material or royalty, offered $ 500 million as one time tax liability to settle the case. India agencies refused to accept the offer and increased liability to $ 3.5 billion. About 50% of the total market value of the organization. How rational? Despite strong pressure from politicians to offer them scrap contract at their terms, followed e-auction policy (it seems most industrial scrap dealers at Sriperumbudur SEZ are local politicians). Penalized for not paying protection money? Promised 10 year tax holiday by TN government. Exported more than 50% of the total production, so VAT is not applicable in the SEZ. They have 1.6 million pages of invoice as supporting evidence and open to verification. TN state VAT agency is not willing to visit the plant. Why did the same government agencies first gave best exporter award and later accuse of no exports? Respected Indian laws and paid all corporate taxes on time, every year (about $300 million). Indian books audited every year and submitted to Indian regulatory authority since 2005. Why wake up after 8 years of business? Employee friendly organization: Paid between 2- 8 Lakhs INR as VRS (much more than norms stated by Indian law) and even parted employees were trained on other skills to improve their employability (not mandated to perform this act) To compensate the production loss from the India unit, we have to expand our facility in Vietnam by adding 10,000 people there We are still world’s second largest mobile handset producer (by units). India plant is still the worlds largest mobile phone plant in terms of capacity (15 million phones a month). Once contributed to more than 10% Nokia’s capacity and at its peak employed 35,000 (8,000 direct) personnel. Microsoft as the new owner, we remain committed to the mobile market Exported phones to 100 countries with ‘Made in India’ stamp, including the Middle East and Africa, Asia, Australia and New Zealand, North America and Europe. We were the biggest Prized Trophy, which Indian government was displaying on ‘Make in India and Sell Globally’ Nokia and its vendors have made cumulative investments of about $500 million in India plant. We were here for the long term Parties: Entity Claimed/Offer Got Central Board of Direct Taxes (CBDT) One time claim of 3.5 Billion USD Lost future tax income source Nokia India Offered to pay $500 Million and let the plant run Never ending legal battle The pain of shutting their largest plant and moving production on their Vietnam plant Sriperumbudur, Tamil Nadu Surrounding property appreciated 1,000 times 35,000 people employed (including vendors) About 2 Lakhs people livelihood dependent on Nokia Value will depreciate High unemployment and oversupply (exploitation) Poverty and misery Chennai Airport About 20% of cargo business from Nokia Loss in revenue and job losses India’s Image International reputation affected Dropped to 142nd place in ease to do business Finnish Investment Despite Finnish government intervention could not clear the hurdles Hit long term prospects for remaining 120 Finnish companies in India Indian Foreign Exchange Export generated foreign exchange (about $ 2 billion per annum) India sales saved foreign exchange (still manage to sell about $1.5 billion per annum) Export foreign currency loss Now india has to import by paying foreign currency on Nokia Phones TN VAT Agencies Raised VAT demand after knowing Nokia’s offered $500 million to Central Income Tax agencies Despite giving them best exporter award, charged them for not exporting Never ending legal battle. Created fear among other companies in SEZ Nokia Plant For plant to be usable in future, need to be maintained Plant assets are now freezed and under control of CBDT and they have to pay maintenance cost of $6 million per year (robotic machines and dust free environment) Conclusion: Doing business in India for MNCs has never been easy. Between 1970-1980 Indian governments (both Congress and Janta Dal) passed series of laws targeting MNCs which led to their exodus. Even now irrational practises like retrofit taxes, ambiguous/outdated laws, corruption, complex paperwork, number of approvals and delayed approval process have contributed to placing India, 14 ranks below Pakistan on ease of doing business. Below Pakistan? By now, Nokia’s Indian Plant would have been reached their target of 1 Billionth phone. Every one of these phone owners located in 100 countries are the brand ambassador of ‘Made in India’ brand. What an opportunity lost? Indian tax agencies trapped Nokia to encash Microsoft ($ 400 billion market capitalization). Got greedy, when they came to know that Nokia is not willing to drag matter in the court and willing to pay more ($ 500 million) than the assumed contractual liability ($ 330 million). They never anticipated the googly from Nokia to exclude India’s unit and sell rest of the business. In india where 10 year wait on court is considered normal, prolonged uncertainty on this case will seriously jeopardize ‘Make in India’ campaign. NDA should immediately direct CBDT to settle the court case and lift the freeze on the plant assets (after six months of continuous shutdown, this plant will become unusable). May be post settlement, any one of the large manufacturers like Microsoft (Nokia), Micromax or Samsung could willing to run this unit. If the same UPA government can reduce contractual penalty on Reliance Industries for under-production of gas in KB basin from $2.4 billion to $600 million (despite strong protest from AAP). Why did they refused Nokia’s offer (more than the contractual liability) and not let the unit run? Source: About 100+ articles all searchable on google
Posted on: Fri, 14 Nov 2014 06:26:33 +0000
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