Nokia 2006 Annual Report Download - page 120

represented by those ADSs. Accordingly, the following discussion, except where otherwise expressly
noted, applies equally to US Holders of ADSs on the one hand and of shares on the other.
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.
US and Finnish Taxation of Cash Dividends
For US federal income tax purposes, the gross amount of dividends paid to US Holders of shares or
ADSs, including any related Finnish withholding tax, generally will be included in gross income as
foreign source dividend income. Dividends will not be eligible for the dividends received deduction
allowed to corporations under Section 243 of the Code. The amount includible 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 Depositary (in the case of ADSs) or by the US Holder (in the case of
shares), 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 a US Holder.
Special rules govern and specific elections are available to accrual method taxpayers to determine
the US dollar amount includible in income in the case of a dividend paid (and taxes withheld) in
foreign currency. Accrual basis taxpayers are urged to consult their own tax advisors regarding the
requirements and elections applicable in this regard.
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. See ‘‘—Finnish
Withholding Taxes on Nominee Registered Shares’’ below.
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 or, for taxable years
beginning January 1, 2007, ‘‘passive category income.’’ 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.
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, 2011, provided that certain holding period and
other 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 anticipates that its dividends will be reported 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
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