Nokia is to close its mobile phone factory in Chennai, India, after it was left with the facility following Microsoft’s acquisition of its Devices & Services unit due to a tax dispute.
The manufacturing plant will close on 1 November as Nokia no longer has a use for it, with Microsoft having terminated a mobile purchase agreement with the company.
A Nokia statement seen by The Times of India said that with no further orders from Microsoft, it will “suspend handset production” at the Chennai factory.
The sale of the Devices & Services business, including Indian assets, was completed on 25 April. However, the Chennai factory could not be transferred to Microsoft due to legal issues related to a tax demand by the Indian government.
The factory had been operated by Nokia since 2006, and exported devices to the Middle East, Africa, Asia, Australia and New Zealand.
But the local government said the company owed IND24 billion ($391 million) in taxes for allegedly selling products made at Chennai in the domestic market instead of exporting them.
In addition the Indian Supreme Court ordered the company to provide a guarantee of INR35 billion before transferring the facility to Microsoft.
The ongoing tax issues led to a ‘transitional services agreement’ between Microsoft and Nokia to enable the facility to continue to operate. However, this agreement now appears to have ended.
Nokia said in its statement that the continuing asset freeze imposed by the tax department prevents it from exploring opportunities to transfer the factory to a successor. It added that it will inform stakeholders of the halt in manufacturing activity.
Although the number of affected workers was not made public, around 5,000 of the 6,600 permanent employees at the facility opted for voluntary retirement in March, according to The Times of India.
Nokia reported solid financials for the second quarter of 2014, as it transitioned to being an infrastructure-led business following the sale of the bulk of its loss-making handset business to Microsoft.