Nokia’s tax settlement is indicative of cross-border resolution

With media reports saying Nokia and the Income Tax Department have entered into an accord under the Mutual Agreement Procedure to settle the pending issue relating to the sale of the Chennai plan, the final road has been paved. 

Closed since November 2014, the telecom giant has waded through tax woes, settling it finally at a figure of Rs 1,600 crore though official confirmation on this is awaited.  

According to a former high-ranking corporate official, this is a clear indication of the Centre’s efforts to resolve complex cross-border issues. Apart from that, the attempt to manage this issue as well as the Vodafone signifies the intent to reduce litigation, generate more revenues and not torture companies. 

“Most importantly, this will lead to compliance rather than complex tax planning. Clearly, this will usher in a regime of compliance and friendly-tax personnel,” the person said, adding that such transactions will build trust to a different sphere, unlike in the past. 

Meanwhile, investors are warming to beleaguered mobile network makers Ericsson and Nokia as they begin to recover ahead of a once-a-decade uplift from a new business cycle and an unexpected boost from a US ban on exports to low-cost Chinese rival ZTE. ZTE has snatched market share in Europe and the Americas, growing four times faster in those markets last year than it did its home market and acting as a drag on contract pricing and revenue growth for Ericsson and Nokia. 

But now, ZTE has been slapped with a potentially devastating seven-year export ban. It has yet to say how it may respond to U.S. threats to cut off its supply chain. 

Ericsson is due to report results on Friday and Nokia next Thursday and the focus is likely to be on next-generation 5G network upgrades expected to start later in 2018 or during 2019, ending a three-to-four year dry spell in network spending. 

Whether or not a Commerce Department ban on US firms supplying components to ZTE holds up, Ericsson and Nokia still face a tough year ahead amid weak overall market demand as telecom operators keep a tight lid on network capital spending.

Three big players dominate the global market for mobile network gear: Huawei, of China, is the biggest, followed closely by Ericsson and Nokia. Complicating the picture is that Huawei and 

Nokia have more revenue from serving other telecom segments. 

Nokia has said it expects its results to bottom this year, and has forecast a recovery in profits by 2020, encouraging investors spooked last year by the general decline in global network spending and acquisition integration missteps. 

Most analysts see Nokia recovering faster than Ericsson, which, in a nutshell, is why Nokia shares are up 22 percent so far this year, while Ericsson is up just 1 percent, after the latest in a string of downbeat quarterly reports in January.