ERJ staff report (TP)
Nokia, Finland − Nokian Tyres has received a reassessment decision from the Finnish Tax Administration, according to which the company is obliged to pay €73.3m additional taxes with punitive tax increases and interests concerning tax years 2008-2010.
Payment must be made in February 2014. The total sum demanded by the tax authorities includes €51m additional taxes and €22.3m punitive tax increases and interests.
Nokian Tyres previously announced on 30 December 2013 that it received a reassessment decision from the Tax Administration, according to which it was obliged to pay €26.9m additional taxes with punitive tax increases and interests concerning tax year 2007.
The firm will record the 2007-2010 total additional taxes of €100.3m in full to the financial statement and result of year 2013.
The Tax Administration's ruling does not affect the company's dividend distribution. The Board of Directors will propose to the Annual General Meeting that the dividend per share for the year 2013 would be at least on the previous year’s level.
If the claim to the Administrative Court does not lead to annulment of the tax decision, the group's corporate tax rate is expected to rise in the next five years, from the previously announced 17 percent to maximum 22 percent.
The Large Taxpayers’ Office carried out a transfer pricing tax audit regarding tax years 2007-2011, investigating if the intercompany transactions between Nokian Tyres and its subsidiaries were concluded based on market prices.
The reassessment decision regarding 2011 has not been received yet. The Tax Administration states in the reasoning of its decision concerning 2007-2010, that the transfer pricing was market-based with all other but the Russian subsidiaries. According to Tax Authorities the success of Russian business is not based on the “modern and efficient” production plant in Russia combined with the sales and logistic network covering the whole of Russia.
The Tax Administration considers the Russian plant as a low risk contract manufacturer and has ruled that a significant part of the Russian subsidiaries' profits should be added to Nokian Tyres’ taxable income in Finland. In practice this leads to double taxation of income, which is contrary to existing tax agreements.
Nokian Tyres said it has consistently applied transfer pricing according to tax laws and OECD (Organisation for Economic Cooperation and Development) guidelines prevailing at the time. The previous tax audit in the company ended to fiscal year 2006, and in its tax audit report the Tax Administration did not require any corrections to the transfer pricing between the company and its subsidiaries already operating at that time in Russia.
The company has prepared a transfer pricing documentation which the Tax Administration has ignored during the tax audit. Nokian considers the reassessment decision of the Tax Administration as unfounded and is going to appeal against it by leaving the claim for rectification to the Board of Adjustment and, if necessary, the firm will continue the appeal process in the Administrative Court. If needed, the company will also require the competent authorities to negotiate on the elimination of the double taxation. Nokian is also considering a separate process to determine the legality of the procedures used in the tax audit by Tax Administration and tax inspectors.
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Press release from Nokian Tyres