A deal with the state
Nokia signed with the Tamil Nadu government in April 2005 to build a plant about 50 km from Chennai, inside a special economic zone. Production began in 2006. At its height it employed about 8,000 people, many of them young women from nearby villages, and suppliers of chargers, cases and circuit boards came up around it.
The tax case
In January 2013 income tax officers searched Nokia’s offices and the plant. The question was whether payments from Nokia India to its Finnish parent for phone software were taxable royalties. The claim grew from about ₹2,000 crore to more than ₹4,000 crore, and the Delhi High Court asked Nokia to deposit ₹2,250 crore in escrow.
Left out of the sale
In September 2013 Nokia agreed to sell its phone business to Microsoft for $7.2 billion. Because of the tax case, the court did not let the Chennai plant pass to Microsoft. It stayed with Nokia, which was leaving phones, and made phones for Microsoft under contract.
Then Microsoft ended that contract. Production stopped on 1 November 2014. A plant with one customer had lost it.
A plant with one customer had lost it.
What stayed behind
The building stood empty for about five years. But the trained workers, the supplier base, the highway and the port were still there. In 2019 a charger maker bought the plant, and Apple’s assemblers grew along the same road. The town lost a factory, not its future.
Points for a finance reader
- One customer is a risk on the balance sheet. When the only buyer leaves, the whole cost base is left with no revenue.
- Tax on payments to a parent can change everything. Royalty and software payments across borders need clear contracts and clear tax positions.
- Skills survive a shutdown. The people Nokia trained became the base for what came next.