Nokia 2003 Annual Report Download - page 96

subject to special rules that are not discussed herein—holders of shares or ADSs that are US
Holders are advised to satisfy themselves as to the overall United States federal, state and local tax
consequences, as well as to the overall Finnish and other applicable non-US tax consequences, of
their ownership of ADSs and the underlying shares by consulting their own tax advisors. This
summary does not discuss the treatment of ADSs that are held in connection with a permanent
establishment or fixed base in Finland.
For the purposes of both the Treaty and the United States Internal Revenue Code of 1986, as
amended, referred to as the Code, US Holders of ADSs will be treated as the owners of the
underlying shares that are represented by those ADSs. The US federal income tax consequences to
US Holders of ADSs, as discussed below, apply as well to US Holders of shares.
The holders of ADSs will, for Finnish tax purposes, be treated as the owners of the shares that are
represented by the ADSs. The Finnish tax consequences to the holders of shares, as discussed
below, also apply to the holders of ADSs.
Taxation of Cash Dividends
For US federal income tax purposes, the gross amount of dividends paid to US Holders of ADSs,
including any related Finnish withholding tax, will be treated as ordinary income to the extent
paid or deemed paid out of the current or accumulated earnings and profits of Nokia (as
determined under US federal income tax principles). To the extent that an amount received by a
US Holder exceeds the allocable share of current and accumulated earnings and profits of Nokia,
such excess will be applied first, to reduce such US Holder’s tax basis in his ADSs and then, to the
extent it exceeds the US holder’s tax basis, it will constitute gain from a deemed sale or exchange
of such ADSs. Dividends will not be eligible for the dividends received deduction allowed to
corporations under Section 243 of the Code. The amount includable in income (including any
Finnish withholding tax) will equal the US dollar value of the payment, determined at the time
such payment is received by the custodian, regardless of whether the payment is in fact converted
into US dollars. Generally, any gain or loss resulting from currency exchange rate fluctuations
during the period between the time such payment is received and the date the dividend payment
is converted into US dollars will be treated as ordinary income or loss to such holder.
Under the Finnish Act on Taxation of Non-residents’ Income and Wealth, non-residents of Finland
are generally subject to a withholding tax at a rate of 29% payable on dividends paid by a
company. However, pursuant to the Treaty, dividends paid to US Holders will generally be subject
to Finnish withholding tax at a reduced rate of 15% of the gross amount of such dividend.
Subject to conditions and limitations, Finnish withholding taxes will be treated as foreign taxes
eligible for credit against a US Holder’s US federal income tax liability. Dividends received with
respect to the ADSs will generally constitute foreign source passive income for foreign tax credit
purposes, but in some circumstances may constitute financial services income or general
limitation basket income. In lieu of a credit, a US Holder of ADSs may elect to deduct all of his
foreign taxes.
Further, in accordance with the imputation system of taxation of dividends, the Finnish corporate
income tax paid by a company can, in the case of a shareholder that is a resident of Finland and,
therefore, liable for Finnish income tax, be credited against the Finnish income tax of the
shareholder to the extent that it relates to the dividends distributed to the shareholder. However,
the tax paid by a company cannot be credited against the Finnish income taxes, if any, of a US
Holder.
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