Nokia 2012 Annual Report Download - page 106

At December 31, 2012, the Group had tax losses carry forward, temporary differences and tax credits
of EUR 10 294 million (EUR 4 302 million in 2011) for which no deferred tax assets were recognized in
the consolidated financial statements due to uncertainty of utilization of these items.
We recognize tax provisions based on estimates and assumptions when, despite our belief that tax
return positions are supportable, it is more likely than not that certain positions will be challenged and
may not be fully sustained upon review by tax authorities. The Group has ongoing tax investigations in
multiple jurisdictions, including Hungary and India. If the final outcome of these matters differs from the
amounts initially recorded, differences may positively or negatively impact the current taxes and
deferred taxes in the period in which such determination is made.
Pensions
The determination of our pension benefit obligation and expense for defined benefit pension plans is
dependent on our selection of certain assumptions used by actuaries in calculating such amounts.
Those assumptions are described in Note 5 to our consolidated financial statements included in
Item 18 of this annual report and include, among others, the discount rate, expected long-term rate of
return on plan assets and annual rate of increase in future compensation levels. A portion of our plan
assets is invested in equity securities. The equity markets have experienced volatility, which has
affected the value of our pension plan assets. This volatility may make it difficult to estimate the long-
term rate of return on plan assets. Actual results that differ from our assumptions are accumulated and
amortized over future periods and therefore generally affect our recognized expense and recorded
obligation in such future periods. Our assumptions are based on actual historical experience and
external data regarding compensation and discount rate trends. While we believe that our assumptions
are appropriate, significant differences in our actual experience or significant changes in our
assumptions may materially affect our pension obligation and our future expense. The financial impact
of the pension assumptions affects mainly the Devices & Services and Nokia Siemens Networks
businesses.
Share-based Compensation
We have various types of equity-settled share-based compensation schemes for employees mainly in
Devices & Services and Location & Commerce. Employee services received, and the corresponding
increase in equity, are measured by reference to the fair value of the equity instruments as at the date of
grant, excluding the impact of any non-market vesting conditions. Fair value of stock options is
estimated by using the Black-Scholes model on the date of grant based on certain assumptions. Those
assumptions are described in Note 24 to our consolidated financial statements included in Item 18 of
this annual report and include, among others, the dividend yield, expected volatility and expected life of
stock options. The expected life of stock options is estimated by observing general option holder
behavior and actual historical terms of Nokia stock option programs, whereas the assumption of the
expected volatility has been set by reference to the implied volatility of stock options available on Nokia
shares in the open market and in light of historical patterns of volatility. These variables make estimation
of fair value of stock options difficult. Non-market vesting conditions attached to the performance shares
are included in assumptions about the number of shares that the employee will ultimately receive
relating to projections of sales and earnings per share. On a regular basis, we review the assumptions
made and revise the estimates of the number of performance shares that are expected to be settled,
where necessary. At the date of grant, the number of performance shares granted that are expected to
be settled is assumed to be two times the amount at threshold. Any subsequent revisions to the
estimates of the number of performance shares expected to be settled may increase or decrease total
compensation expense. Such increase or decrease adjusts the prior period compensation expense in
the period of the review on a cumulative basis for unvested performance shares for which compensation
expense has already been recognized in the profit and loss account, and in subsequent periods for
unvested performance shares for which the expense has not yet been recognized in the profit and loss
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