Nokian Tyres received EUR 87 million additional payable tax in Finland regarding years 2007-2010
the company will make a complaint against the decision
Nokian Tyres plc (HEX:NRE1V) has received a renewed reassessment decision from the Tax Administration, according to which the Company is obliged to pay EUR 87 million additional taxes with punitive tax increases and interests concerning tax years 2007-2010. Payment must be made in January 2016. The total sum demanded by the tax authorities is EUR 87 million, of which EUR 55 million are additional taxes and EUR 32 million punitive tax increases and interests. Company considers the decision unfounded and appeals against it by leaving the claim to the Board of Adjustment. The Company will record the 2007-2010 total additional taxes of EUR 87 million in full to the financial statement and result of year 2015.
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 2015 would be at least on the previous year’s level. The ruling has no effect on company’s guidance: In 2015, with current exchange rates, net sales are to decline slightly compared to 2014 and operating profit is estimated to be approximately EUR 270-295 million. 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 to the Tax Administration’s decision
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. Reassessment decisions concerning tax years 2007-2010 (company’s releases 30 Dec 2013 and 21 Jan 2014) contained EUR 100 million of additional taxes, including penalties and interests, which the Company recorded in full to the financial statement and result of year 2013. The Tax Administration accepted company’s appeal for stay of execution of additional taxes, regardless of which the Tax Administration has set off EUR 43 million from company’s VAT refunds.
The Company appealed to the Board of Adjustment, 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). Despite of the annulment, the Tax Administration has not returned EUR 43 million it has already set off.
The 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. The Tax Authorities 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 company’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. The Tax Administration has not presented any appropriate grounds to justify the disregarding of the Company’s transfer pricing documentation. The Tax Administration´s reassessment decisions have also been based on the so-called recharacterization of legal transactions in the sense rejected by the Supreme Administrative Court.
Nokian Tyres plc considers the Tax Administration´s decision unfounded and appeals again against it to the Board of Adjustment and, if necessary, will continue the appellate process 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 Antti-Jussi Tähtinen VP, Marketing and Communications
Nokian Tyres is the only tyre manufacturer in the world that focuses on customer needs in northern conditions. The company supplies innovative tyres for cars, trucks and special heavy machinery mainly in areas with special challenges on tyre performance: snow, forests and harsh driving conditions in different seasons. Nokian Tyres’ product development is consistently aiming for sustainable solutions for safety and the environment, taking into account the whole life cycle of the tyre. A part of the Nokian Tyres group, the tyre chain Vianor has over 1,400 outlets in 27 countries. In 2014 Nokian Tyres had over 4,200 employees and net sales of approximately 1,4 billion euros. Nokian Tyres’ share is listed on the Nasdaq Helsinki.