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Financial Times

Nokia has won a crucial reprieve in its tax battle with India’s government, with a court in New Delhi ruling that the Finnish group can transfer its assets in the country as part of its €5.4bn phone business sale to Microsoft.

However, the court also ruled that the mobile company must deposit Rs22.5bn ($365m) as a security against the eventual resolution of the tax dispute, which will continue once the asset transfer is completed.

The ruling means Nokia is likely to be able to transfer its main Indian factory in Chennai as part of the Microsoft deal, which was announced in September, despite narrowly missing an internal deadline to resolve the dispute by the end of Wednesday.

India’s tax authorities had issued an order freezing all physical assets at Nokia’s Chennai facility.

Thursday’s move to unfreeze the assets is a rare positive development for Nokia in India, where it also faces a potentially damaging escalation of its broader tax dispute that could increase its total liability to around $1.1bn.

“Undoubtedly this is good news for Nokia, because the decision casts no doubt on the overall merits of their tax case, which will now be decided later,” said Mukesh Butani, chairman of BMR Advisors, an Indian professional services group.

“Nokia have just been asked to place this money in an escrow account, but the assets are unfrozen, and for them the main point is that the deal with Microsoft can go ahead,” he added.

Nokia’s tax dispute began in January with a raid on the group’s factory in Chennai following allegations of non-payment of tax from Nokia’s Indian subsidiary to its parent company.

Nokia has strongly denied the claim, describing the actions of Indian tax inspectors as “excessive, unacceptable and inconsistent” in the aftermath of their raid on the group’s facilities.

Thursday’s decision is likely to be welcomed more broadly by international businesses operating in India, many of which are caught in similar wrangles with the tax authorities.

Foreign groups including Britain’s Vodafone, Anglo-Dutch oil group Shell and IBM of the US have been embroiled in similar high-value disputes that have dented the perception of India as a welcoming environment for investment.

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