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Nokia to shutter India phone factory amid tax dispute

The factory, which was not included in Microsoft's acquisition deal due to ongoing tax issues with the Indian government, is the last production facility in operation at Nokia.

Nokia Lumia 1520 Josh Miller/CNET

Nokia will end production at its last remaining smartphone plant on November 1, the company has confirmed.

The Chennai, India, plant will officially halt operations next month after Microsoft informed Nokia that it will no longer use the facility for its smartphone production, the Finland-based company said Wednesday.

"Microsoft has informed Nokia that it will be terminating the manufacturing services defined in the agreement with effect from 1 November 2014," Nokia told CNET in an e-mailed statement. "In absence of further orders from Microsoft, Nokia will suspend handset production at the Sriperumbudur facility from 1 November."

The Chennai plant, known as Sriperumbudur, was under a cloud when Microsoft acquired Nokia's devices and services division in April.

Due to ongoing tax disputes with the Indian government, Nokia was unable to include the facility in the sale to Microsoft. Instead, the companies signed an agreement that would enabled Microsoft to temporarily use the facility for smartphone production.

Earlier this year, India's tax officials raided the plant and hit Nokia with a bill for back taxes amounting to $500 million. Nokia is battling the levy in court, saying it has done nothing wrong. Microsoft steered clear of the issue when it acquired Nokia's devices and services operation. The original agreement had assumed that the Chennai plant would be included in the deal.

Since Nokia owns the plant, it could technically attempt to find other companies that would use the site to produce devices. However, because of the ongoing tax issues, the government has put a freeze on the company's assets, preventing Nokia from seeking other customers.

"Unfortunately, the continuing asset freeze imposed by the tax department prevents Nokia from exploring potential opportunities for the transfer of the factory to a successor to support the long term viability of the established, fully functional electronics manufacturing ecosystem," Nokia said in its statement to CNET.

The Chennai plant is the last production facility in operation at Nokia.

The plant's future is uncertain. Earlier this year, mobile device maker HTC said that it would at least "look into" the possibility of buying the plant from Nokia. Since then, however, HTC hasn't indicated that it's any closer to making an acquisition.

Updated at 8:12 a.m. PT to include Nokia's statement.

(Via ZDNet)