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Nokia just hit a $571-million obstacle to completing its deal with Microsoft

The Supreme Court of India ruled today that Nokia must deposit 35 billion rupees ($571 million) in an escrow account before it can transfer its factory in India to Microsoft as a part of its 5.4-billion-euro deal to sell its mobile phones business to the tech giant. The court also wants Nokia to “waive some of its rights to legal defense as a condition for transferring Indian assets to Microsoft,” reports Reuters.

The company finds itself in this situation as a result of a long-running tax dispute, one of many involving Indian authorities and multi-national companies. India has been seeking Rs 21 billion ($339 million) in back taxes on income from downloads on phones made in India. Nokia argued that a bilateral tax treaty between India and Finland, where it is headquartered, means it doesn’t have to pay such taxes. As the case went on, Nokia agreed to set aside Rs 22.5 billion—but a high court asked it to deposit some more, in case of further tax disputes. 

Nokia has no further legal recourse in India. The company said it was disappointed and was considering its options. But it is left with very few, all of them pretty lousy. It can cough up the cash. It can run the plant as a contractor—though that wouldn’t be for very long, Nokia’s lawyers told the court.

Or it can shut down the plant, which is the worst possible outcome for everyone: Microsoft loses a valuable asset in an important market, Nokia sees the value of its sale price fall, and 8,000 Indians lose their jobs. Whatever it chooses to do, it must decide fast. The deal with Microsoft is meant to close by the end of this month.

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