Mon November 7 03:00 pm 2016 in category Stock exchange releases
Nokian Tyres tax dispute proceeds. The Company is now finally in position to appeal to the Administrative Court
Nokian Tyres plc Stock Exchange Release November 7, 2016, 3.00 p.m.
The Board of Adjustment of the Finnish Tax Administration held the reassessment decision from the Tax Administration unchanged related to additional taxes EUR 62.8 million but decreased the amount of punitive tax increases and interests from EUR 31.3 million to EUR 26.4 million concerning tax years 2007-2010. The decision of the Board of Adjustment was not unanimous.
The Company has already recorded the 2007-2010 total additional taxes of EUR 94.1 million in full to the financial statement and result of year 2015 based on the Tax Administrations decisions December 2015 and January 2016.
The Company considers the decision unfounded and appeals against it by leaving the claim to the Administrative Court.
The ruling of The Board of Adjustment of the Finnish Tax Administration does not affect the Company's dividend policy. The ruling has no effect on the Nokian Tyres Group’s guidance: In 2016, with the current exchange rates, net sales and operating profit are expected to remain at the same level compared to 2015.
If the claim does not lead to annulment of the tax decision, the Group's corporate tax rate is expected to rise in the next 4 years, from the previously announced 17 per cent to maximum 22 per cent.
Background of the tax dispute
Large Taxpayers’ Office carried out a transfer pricing tax audit regarding tax years 2007-2011, investigating if the intercompany transactions between Nokian Tyres plc and its subsidiaries were concluded based on market prices. Reassessment decision regarding year 2011 has not been received yet and the latter years are still unaudited. Reassessment decisions concerning tax years 2007-2010 (company’s releases 30 Dec 2013 and 21 Jan 2014) contained EUR 100.3 million of additional taxes, including penalties and interests, which the Company recorded in full to the financial statement and result of year 2013.
The Company appealed to the Board of Adjustment of the Finnish Tax Administration, which annulled the additional payable tax imposed by the Tax Administration and returned the matter back to the Tax Administration for reprocessing (company’s release 7 April 2015).
In December 2015 and January 2016, the Company received renewed reassessment decisions from the Tax Administration, according to which the Company was obliged to pay EUR 94.1 million in additional taxes with punitive tax increases and interest concerning tax years 2007-2010. The Company paid the amount in January 2016. The Company recorded EUR 94.1 million in full as expenses in the financial statement and result for 2015.
Tax Administration states in the reasoning of its decision concerning 2007-2010, that the transfer pricing was at arm’s length with all others but the Russian subsidiaries. They have ignored the modern and efficient production plant in Russia combined with the sales and logistic network covering whole Russia as basis for success of the Nokian Tyres Group’s Russian business. Tax Administration considers the Russian plant as a low risk contract manufacturer. The Tax Administration 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 treaty.
Nokian Tyres to appeal against the decision
The Company’s transfer pricing has been at arm’s length as provided by Finnish laws and the OECD Transfer Pricing Guidelines. No appropriate grounds to justify the disregarding of the Company’s transfer pricing documentation has been presented. The decision of the Board of Adjustment of the Finnish tax Administration is also based on the so-called re-characterization of legal transactions in the sense rejected by the Supreme Administrative Court.
Nokian Tyres plc considers the decision by the Board of Adjustment of the Finnish Tax Administration unfounded and appeals against it to the Administrative Court. If needed, the Company will also require the competent authorities to negotiate on the elimination of the double taxation. The Company has initiated a separate process for evaluating the legitimacy of the procedures used in the tax audit by Tax Administration and tax inspectors.
Nokian Tyres plc
VP, Marketing and Communications
Anne Leskelä, CFO, tel: +358 10 401 7481
Distribution: Nasdaq Helsinki Ltd, media, www.nokiantyres.com