By Sumeet Chatterjee and Nigam Prusty
Dec 11 (Reuters) - An Indian court ruling expected onThursday could determine whether Nokia will be freeto transfer a phone-making factory to Microsoft Corp orpay as much as $3.4 billion in disputed taxes.
The Chennai plant is one of Nokia's biggest phone-makingfactories and was seized by authorities because of tax claims.Nokia appealed the seizure and has been trying to end thedispute ahead of the sale of its mobile phone business toMicrosoft in a 5.4 billion euro ($7.4 billion) deal.
Nokia has said it wanted the factory seizure to be lifted byDec. 12 for the planned transfer of the business to Microsoft.
Nokia's case is one of several tax disputes involvingforeign companies in India, which has stepped up its pursuit ofclaims against such firms as it seeks to rein in its budgetdeficit.
Companies recently involved in tax disputes in India includeIBM, Royal Dutch Shell, Vodafone Plc and LG Electronics Inc.
In March, Nokia was served with a tax demand of about 20.8billion rupees ($340.45 million) for five fiscal years startingfrom 2006-07, according to a March 22 notice on the Delhi HighCourt website.
Including the anticipated liability, or the tax bill for theyears that have not been assessed by the authorities, the totalliability could rise to roughly 75 billion rupees, said MohanParasaran, who is representing the tax department.
If Nokia loses the legal battle, it may have to pay as muchas 210 billion rupees ($3.44 billion), which includes penaltiesand interest, Parasaran said. He declined to give additionaldetails.
The penalty for non-payment of tax as per local rules can beas high as up to three times the amount owed, tax experts said.
Nokia has said it had not been served with any claim beyondthe 20.8 billion rupee amount.
Nokia has said it does not expect the tax dispute to affectits deal with Microsoft, which is likely to close in the firstquarter of 2014, but a lengthy asset freeze could complicatematters by preventing the transfer of the Chennai plant.
Nokia did not have an immediate comment on Wednesday.
CONTRACT MANUFACTURING
If the asset freeze continues, Nokia could operate the plantas a contract manufacturer for Microsoft, but it would be adistraction for the Finnish company's plans to focus on growingits network equipment business.
It would also likely be temporary and Nokia could eventuallyshut it down, depriving Microsoft of a crucial production sitein India. Nokia has invested more than $330 million in Chennaisince setting up the factory in 2006.
Nokia said earlier this week that it recently offered to paya 270 million euro ($369 million) deposit to Indian authorities,on top of an earlier agreement to pay around 85 million euros,to unfreeze assets including the Chennai plant.
The factory has about 7,000 staff and the Delhi High Courtsaid on Wednesday it would protect the interests of the workers.
