Nokia 2011 Annual Report Download - page 198

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
US source 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 Income Tax Act and Act on Taxation of Non-residents’ Income, non-residents of
Finland are generally subject to a withholding tax at a rate of 28% payable on dividends paid by a
Finnish resident 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.
Qualifying pension funds are, however, pursuant to the Treaty exempt from Finnish withholding tax.
See also “—Finnish Withholding Taxes on Nominee Registered Shares” below.
Subject to conditions and limitations, Finnish income taxes withheld 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 category 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.
Certain US Holders (including individuals and some trusts and estates) are eligible for reduced rates of
US federal income tax at a maximum rate of 15% in respect of “qualified dividend income” received in
taxable years beginning before January 1, 2013, 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 (a “PFIC”).
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.
We believe that we should not be classified as a PFIC for US federal income tax purposes for the
taxable year ended December 31, 2011 and we do not expect to become a PFIC in the foreseeable
future. US holders are advised, however, that this conclusion is a factual determination that must be
made annually and thus may be subject to change. If we were to be classified as a PFIC, the tax on
distributions on our shares or ADSs and on any gains realized upon the disposition of our shares or
ADSs may be less favorable than as described herein. Dividends paid by a PFIC are not “qualified
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