Nokia 2004 Annual Report Download - page 112

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 28% payable on dividends paid by a
company. However, pursuant to the Treaty, dividends paid to US Holders generally will be subject
to Finnish withholding tax at a reduced rate of 15% of the gross amount of the 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 generally
will constitute foreign source passive income for foreign tax credit purposes. In lieu of a credit, a
US Holder may elect to deduct all of its foreign taxes provided the deduction is claimed for all of
the foreign taxes paid by the US Holder in a particular year. A deduction does not reduce US tax
on a dollar-for-dollar basis like a tax credit. The deduction, however, is not subject to the
limitations applicable to foreign tax credits.
The US Treasury has expressed concern that parties to whom ADSs are released may be taking
actions inconsistent with the claiming of foreign tax credits for US Holders of ADSs. Accordingly,
the analysis above of the creditability of Finnish withholding taxes could be affected by future
actions that may be taken by the US Treasury.
If a US Holder is a non-corporate US holder, the US dollar amount of any dividends paid to it prior
to January 1, 2009 that constitute qualified dividend income generally will be taxable at a
maximum rate of 15%, provided that the US Holder meets certain holding period requirements.
Dividends that Nokia pays with respect to its shares and ADSs generally will be qualified dividend
income if Nokia was not, in the year prior to the year in which the dividend was paid, and is not,
in the year in which the dividend is paid, a passive foreign investment company. Nokia currently
believes that dividends paid with respect to its shares and ADSs will constitute qualified dividend
income for US federal income tax purposes, however, this is a factual matter and is subject to
change. The US Treasury and the US Internal Revenue Service have announced their intention to
promulgate rules pursuant to which US Holders of shares and ADSs, among others, will be
permitted to rely on certifications from issuers to establish that dividends are treated as qualified
dividends. US Holders of shares or ADSs are urged to consult their own tax advisors regarding the
availability to them of the reduced dividend tax rate in light of their own particular situation and
the computations of their foreign tax credit limitation with respect to any qualified dividends paid
to them, as applicable.
US Tax on Sale or Other Disposition
A US Holder generally will recognize taxable capital gain or loss on the sale or other disposition of
ADSs in an amount equal to the difference between the US dollar value of the amount realized
and the adjusted tax basis (determined in US dollars) in the ADSs. If the ADSs are held as a capital
asset, this gain or loss generally will be long-term capital gain or loss if, at the time of the sale,
the ADSs have been held for more than one year. Any capital gain or loss, for foreign tax credit
purposes, generally will constitute US source gain or loss. In the case of a US Holder that is an
individual, any capital gain generally will be subject to US federal income tax at preferential rates
in effect until December 31, 2008 if specified minimum holding periods are met. The deductibility
of capital losses is subject to significant limitations.
The deposit or withdrawal of shares in exchange for ADSs by a US Holder under the deposit
agreement generally will not be subject to US federal income tax.
The sale by a US Holder of the ADSs or the underlying shares, other than an individual that, by
reason of his residence in Finland for a period exceeding six months, is or becomes liable for
Finnish income tax according to the relevant provisions of Finnish tax law, generally will not be
subject to income tax in Finland, in accordance with Finnish tax law and the Treaty.
111