Nokian Tyres has received a reassessment decision from the Finland tax administration, stating the tiremaker is obligated to pay 26.9 million euros in back taxes. Nokian plans on disputing the reassessment.
Nokian owes the government 16 million euros in additional taxes and 10.9 million in punitive tax increases and interests for the 2007 tax year. The payments are due in January 2014.
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. The reassessment decision is based on this audit.
Decisions regarding 2008 – 2011 have not been received yet.
The Tax Administration said it based its reassessment on its findings that in 2007 the transfer pricing was market-based with all but the Russian subsidiaries. According to the 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. The tax administration has ruled that a significant part of the Russian subsidiaries’ profits should be added to Nokian Tyres’ taxable income in Finland.
The tiremaker said this leads to double taxation of income, which is contrary to existing tax agreements. Nokian noted it has consistently applied transfer pricing according to tax laws prevailing at the time, and believes the reassessment decision is unfounded.
"We have attempted to make every effort to assist the tax authorities to understand the operations of the group and our Russian business. 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 interpretation that the tax administration has now made does not contribute to the predictability of taxation. When enforced, the decision would force the company to consider carefully how the group’s businesses will be organized. In any case, the process will take years, and will require company’s efforts and resources," said Anne Leskelä, the tiremaker’s chief financial officer.
Nokian plans to appeal the reassessment by leaving the claim for rectification to the board of adjustment and, if necessary, it will continue the appeal process in the administrative court, the company said. Nokain will also require the competent authorities to negotiate on the elimination of the double taxation, if required.
The tiremaker said it is also considering a separate process to determine the legality of the procedures used in the tax audit by the tax administration and tax inspectors.
