Nokia 2005 Annual Report Download - page 124

Certain US Holders (including individuals and some trusts and estates) are eligible for reduced
rates of U.S. federal income tax at a maximum rate of 15% in respect of ‘‘qualified dividend
income’’ received in taxable years beginning before January 1, 2009, provided that certain holding
period requirements are met. 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. Nokia intends to report its dividends as
qualified dividends on Forms 1099-DIV delivered to US Holders. 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.
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 or reduced rates in respect of qualified
dividends by US Holders of ADSs. Accordingly, the analysis of the creditability of Finnish
withholding taxes or the availability of qualified dividend treatment could be affected by future
actions that may be taken by the US Treasury with respect to ADSs.
Finnish Withholding Taxes on Nominee Registered Shares
For US Holders, the reduced 15% withholding tax rate of the Treaty (instead of 28%) is applicable
to dividends paid to nominee registered shares only when the conditions of the new provisions
applied to dividends that are paid on January 1, 2006 or after are met (Section 10b of the Finnish
Act on Taxation of Non-residents’ Income and Wealth).
According to the new provisions, the Finnish account operator and a foreign custodian are
required to have a custody agreement, according to which the custodian undertakes to a) declare
the country of residence of the beneficial owner of the dividend, b) confirm the applicability of the
Treaty to the dividend, c) inform the account operator of any changes to the country of residence
or the applicability of the Treaty, and d) provide the legal identification and address of the
beneficial owner of the dividend and a certificate of residence issued by the local tax authorities
upon request. It is further required that the foreign custodian is domiciled in a country with
which Finland has entered into a treaty for the avoidance of double taxation and that the
custodian is entered into the register of foreign custodians maintained by the Finnish tax
authorities.
In general, if based on an applicable treaty for the avoidance of double taxation the withholding
tax rate for dividends is 15% or higher, the treaty rate may be applied when the above-described
conditions of the new provisions are met (Section 10b of the Finnish Act on Taxation of
Non-residents’ Income and Wealth). A lower rate than 15% may be applied based on the
applicable treaty for the avoidance of double taxation only when the following information on the
beneficial owner of the dividend is provided to the payer prior to the dividend payment: name,
date of birth or business ID (if applicable) and address in the country of residence.
US and Finnish 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
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