Nokian to appeal 87 million euro additional tax bill

Nokian Tyres is to appeal a tax adjustment for the years 2007 – 2010, meaning the firm must pay an extra 87 million euros. 55 million euros of the figure are additional taxes and the remaining 32 million euros punitive taxes. Payment must be made in January 2016.

Nokian described the decision as “unfounded” and is appealing against the decision. If the claim does not lead to annulment of the tax decision, Nokian’s corporate tax rate is expected to rise in the next four years, from the previously announced 17 per cent to the maximum 22 per cent.

The decision to up the tax bill was made after the Large Taxpayers’ Office carried out a transfer pricing tax audit regarding tax for the years 2007-2011, investigating if the intercompany transactions between Nokian Tyres plc and its subsidiaries were concluded based on market prices. Reassessment decisions concerning the tax years 2007-2010 have already been accounted for, but a decision is still pending for 2011. The upshot is that the bill could get higher.

The Finnish Tax Administration states that its decision has to do with Nokian’s Russian subsidiaries, which is technically considered as a “low risk contract manufacturer” rather than a modern factory in its own right. The Tax Administration has therefore ruled that a significant part of the Russian subsidiaries’ profits should be added to Nokian Tyres’ taxable income in Finland. Nokian argues that “this leads to double taxation of income, which is contrary to existing tax treaty.”

According to Nokian, the Tax Administration’s ruling does not affect the company’s dividend distribution. Indeed, the board of directors will propose to the Annual General Meeting that the dividend per share for the year 2015 would be at least on the previous year’s level. Neither does the ruling affect company’s guidance: In 2015, with current exchange rates, net sales are expected to decline slightly compared to 2014 and operating profit is estimated to be 270 – 295 million euros.