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Nokian Tyres obliged to pay EUR 59 million additional tax; to file appeal

Nokian Tyres has received a tax reassessment decision from the Tax Administration, according to which the Company is obliged to pay EUR 59 million additional taxes with punitive tax increases and interests concerning tax year 2011. Payment must be made in November 2017. The total sum demanded by the tax authorities is EUR 59 million, of which EUR 39 million are additional taxes and EUR 20 million punitive tax increases and interests.

The Company will record the 2011 total additional taxes of EUR 59 million in full to the financial statement and result of Q3/2017. The Tax Administration’s ruling does not affect the company’s dividend distribution, the company said.

Nokian to appeal against the decision

Nokian Tyres has consistently applied transfer pricing according to tax laws and OECD guidelines prevailing at the time. The Company has prepared a transfer pricing documentation which the Tax Administration has ignored during the tax audit. The Company considers the reassessment decision of the Tax Administration as unfounded and is going to appeal to the Board of Adjustment and, if necessary, the Company 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 said in a statement.

Background

Large Taxpayers’ Office carried out a transfer pricing tax audit regarding tax years 2007-2011 during 2012-2013, investigating if the intercompany transactions between Nokian Tyres and its subsidiaries were concluded based on market prices. Company has already paid EUR 89.2 million additional taxes and punitive tax increases concerning tax years 2007-2010 based on tax reassessment decisions from the Tax Administration and has appealed them by filing an appeal to the Administrative court in January 2017.

The Tax Administration states in the reasoning of its decision concerning 2011, 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 whole Russia. 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 agreements.

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