Dematerialization and Tax reforms in Japan. - The JPY custody perspective - I. Dematerialization of listed shares. II. Upcoming Tax Reforms in Japan

Transcription

1 September Dematerialization and Tax reforms in Japan - The JPY custody perspective - I. Dematerialization of listed shares II. Upcoming Tax Reforms in Japan The Bank of Tokyo-Mitsubishi UFJ, Ltd Transaction Services Division

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3 Dematerialization of the listed shares and Tax reforms in Japan The settlement reforms in Japanese market are making progress as originally scheduled and dematerialization of share certificates of the listed shares based on the Law Concerning Book-Entry Transfer of Corporate Bonds, etc. (Law No.75 of 2001, hereinafter called the Law ) is scheduled on 5 January 2009 (*) ( ) As the market consensus, 5 January 2009 is agreed as the target date to implement dematerialization. Legally, the date of implementation will be finally designated by the governmental ordinance among the dates before 8 Jun Almost concurrently, Japanese market will face the structural change from the decisions made by the recent tax reforms. Preferential withholding tax rate (WHT rate) 7% applied for the last 5 year to almost whole dividends payment will expire at the end of March 2009, reverting WHT rate to the original rate of 15%. As a result, most of non-resident investors to the Japanese market will move for applying the double tax treaty rate as it prevails. We herewith show introductory information and overview of the new Book-Entry Transfer System ( New System ) and recent discussions of tax reforms. In the series of events in the market, we appreciate if you could extend us your kind cooperation for smooth transition to the new system. BTMU Profile Corporate Name: The Bank of Tokyo-Mitsubishi UFJ, Ltd. Registration Number: Director General of the Kanto Local Finance Bureau Registration Number 5 Head Office: Main business areas: 7-1, Marunouchi 2-Chome, Chiyoda-ku, Tokyo Japan Banking business, Registered financial institution business The information contained herein has been derived from several sources believed to be reliable at the time of publication. Although having made every effort to ensure the accuracy of the contents, The Bank of Tokyo-Mitsubishi UFJ, Ltd. does not assume any liability for losses either direct or consequential caused by the use of this information. Copyright 2008 The Bank of Tokyo-Mitsubishi UFJ, Ltd.

4 I. DEMATERIALIZATION OF LISTED SHARES OUTLINE OF THE CHANGE AND ACTIONS TO BE TAKEN... 1 (1) SCHEDULES AND ACTIONS TO BE TAKEN... 1 (2) CHANGE OF THE LEGAL FRAMEWORK... 2 (3) GRAPHIC IMAGE OF THE RELEVANT PARTIES (SOURCE: JASDEC HOMEPAGE) CONVERSION OF SECURITIES, REGISTRATION PROCESS AND ENTITLEMENTS... 4 (1) CONVERSION OF THE SECURITIES TO ELECTRONIC FORM... 4 (2) CHANGE OF PROCESSING SECURITIES REGISTRATIONS OF SHAREHOLDERS FOREIGN INDIRECT ACCOUNT MANAGEMENT INSTITUTION( FIAMI )... 6 (1) WHAT IS FIAMI?... 6 (2) WHO IS OBLIGATED TO OBTAIN FIAMI?... 6 (3) FIAMI STATUS HOLDERS CAN TAKE PART IN NAYOSE (NAME IDENTIFICATION) PROCESS... 6 (4) WILL BTMU ACT AS STANDING PROXY FOR ALL THE SHARES? BOOK-ENTRY TRANSFER SYSTEM NEW FRAMEWORK TO ALLOCATE THE OWNERSHIPS OF FOREIGN OWNERSHIP LIMIT ( FOL ) (1) HOW TO FIX THE ENTITLED SHARES FOR FOREIGN SHAREHOLDERS (2) HOW TO FIX THE ENTITLEMENTS AT THE START OF DEMATERIALIZATION...11 (3) UPCOMING SCHEDULES (DETAILS STILL UNDER DISCUSSION)...11 (4) EXAMPLE OF HANDLING OF SHARES EXCEEDING FOL LIMIT...11 (5) HOW TO CONFIRM THE UPDATED FOL RATIO HELD BY FOREIGN INVESTORS SPECIAL ACCOUNT (1) WHAT IS SPECIAL ACCOUNT*? (2) HOW TO TRANSFER YOUR SECURITIES BACK FROM SPECIAL ACCOUNT (3) GRAPHIC IMAGE OF TRANSITION OF PHYSICAL SECURITIES TO SPECIAL ACCOUNT (4) FREQUENTLY ASKED QUESTIONS AND ANSWERS RELATED LINKS: SUSPENSION PERIOD ON OR AROUND 5 JANUARY APPENDIX 1 : IMPACTS OF NAYOSE APPLICATIONS APPENDIX 2 : FREQUENTLY ASKED QUESTIONS AND ANSWERS OF SPECIAL ACCOUNT II. UPCOMING TAX REFORMS IN JAPAN OUTLINE OF UPCOMING TAX REFORMS Q&A ON TAX REFORMS OVERVIEW MATRIX OF THE APPLICABLE TAX RATE ON DIVIDENDS OF LISTED SHARES... 24

5 I. Dematerialization of listed shares 1. Outline of the change and actions to be taken (1) Schedules and actions to be taken Events Actions to be taken by clients Jul ~ Details of the application procedures of applying for Foreign Indirect Account Management Institution Clients applying for FIAMI have been requested to contact BTMU with required documents by the end of September. ( FIAMI ) announced by JASDEC Aug ~ Encourage clients to deposit physical shares except for FOL issues to JASDEC BTMU has been contacting the clients to ask for the instructions to deposit listed physical shares to JASDEC, before a deadline to be specified by JASDEC Sep ~ Submission of the consent letter for dematerialization and prior deposit of physical shares BTMU will ask the clients to consent on the letter for dematerialization and prior deposit of physical shares Oct ~ Deposit outstanding physical shares including FOL shares to JASDEC BTMU will contact the clients with detailed schedule to deposit outstanding physical shares including FOL shares to JASDEC. Dec ~ Fix the list of the physical shares to be transferred to the Special Accounts(*) BTMU will contact the applicable clients with the details of the outstanding listed physical shares to confirm they will be transferred to Special Accounts after Jan ~ Enforcement of dematerialization (currently scheduled) Listed shares, convertible bonds and other applicable securities will be dematerialized. (*) Please refer to the Chapter 5 for details of Special Account. 1

6 (2) Change of the Legal Framework Name of the law Explanation Current Law concerning safekeeping and transfer of the shares etc. Underlying concept of the law is the issuance of physical certificates. Although shares are deposited with JASDEC, withdrawal of shares is possible upon request. After January 2009 (after dematerialization) Law Concerning Book-Entry Transfer of Corporate Bonds, equity, etc. (Law No.75 of 2001) The account book represents the shareholders rights of the securities. Japanese Government Bonds, ETF, corporate bonds and some of the other securities are already dematerialized under this Law. Stock, convertible bonds, etc. will be newly handled under this Law. 2

7 (3) Graphic image of the relevant parties (Source: JASDEC homepage) <Current System> Depository and Book-entry Transfer System Issuer Register of shareholders Register of beneficial shareholders Notice of beneficial shareholders Re-registration request JASDEC <New System> Book-Entry Transfer System( Dematerialized System) Issuer Register of shareholders Notice of all shareholders All securities to be routed via JASDEC JASDEC Name Identification of shareholders Participant Withdrawal possible Participant *AMI =Account Management Institution Direct AMI Indirect AMI Indirect AMI Indirect AMI Direct AMI Share certificate holder Shareholder Shareholder Shareholder Shareholder Shareholder Shareholder Shareholder Shareholder Account Transfer Account Transfer How to register the name of shareholders Physical Certificates Current System There are two types of registration of securities: A register of shareholders by directly requesting to transfer agent ( TA ) and a register of beneficial shareholders via JASDEC The depository and book-entry transfer system is established in an environment of the existence of physical share certificates. There are two types for holding share certificates: certificates deposited with JASDEC and certificates not deposited with JASDEC. Shareholders have a choice between the two. As from Jan (after dematerialization) There is only one process of registration of securities: The list of shareholders will be created in JASDEC s name identification system. Transfers of the titles of the securities and registration are executed by account transfer (except for FOL issues). There will be no more Individual re-registration process to TAs as is conducted in the current system. There are no physical share certificates in the book-entry transfer system. All the shareholders rights are registered in the transfer account book. Shareholders do not have a choice between book-entry form and physical form. * In New System, only electrical records in transfer account book will represent ownership of securities. Multitiered Structure JASDEC opens participants account for financial firms such as securities companies, and participants open customer accounts. Participants are positioned under JASDEC and customers are positioned under participants. (single tiered structure) Legal recognition of multitiered structure of intermediaries to be introduced. An Account Management Institution ( AMI ) can open other AMI accounts. Direct AMIs are positioned under JASDEC and Indirect AMIs are positioned under direct AMIs or other Indirect AMIs. 3

8 2. Conversion of securities, registration process and entitlements (1) Conversion of the securities to electronic form Current System Listed shares, convertible bonds, subscription rights, REIT, etc In case the shares deposited in JASDEC before the end of 2008 In case the shares kept in physical form Fractional shares (share representing less than one share) Odd-lot share (Less than board lot share) currently registered in the list of shareholders Unlisted shares Foreign shares Preferred shares of listed company Other securities (such as JGB, corporate bonds, ETF, etc) As from Jan (after dematerialization) Handled as JASDEC dematerialized securities. (almost the same handling as now in JASDEC) Transferred to Special Account (*). Securities at Special Account firstly need to be transferred to the shareholders own account then later it can be delivered to the third parties. No more fractional shares to exist after In order to eliminate existing fractional shares, some issuing companies will conduct a stock split. Odd lot shares derived from fractional shares by such stock split will also be transferred to the Special Account automatically. The others will repurchase the existing odd lot shares compulsorily. Transferred to Special Account (*). Odd lot shares now handled in JASDEC will be dematerialized. Not to be dematerialized unless the issuer resolves no-issuance of the physical shares. Unlisted shares are not eligible in JASDEC even after dematerialization. Not to be dematerialized. Current depository and settlement system for foreign shares, etc. run by JASDEC will remain effective. Physical shares will be dematerialized and ownership of shareholders will be administrated in issuers shareholders book, but not to be handled and safekept in JASDEC Book-entry system.(**) They have already been dematerialized in the past therefore there will be no impact to those securities. (*)As for the shares transferred to Special Account, it cannot be directly transferred to the third parties and special procedure will be required. Please refer to the Chapter 5 for further explanation of Special Account. (**) If Japanese Stock Exchanges start to handle preferred shares in the future in accordance with development of class stock market, it is likely to be eligible in JASDEC. 4

9 (2) Change of processing securities registrations of shareholders Current System Registration of shares to the list of shareholders is processed as follows; - Physical shares: Request for re-registration is declared to the transfer agents ( TA ) directly. - JASDEC shares: When the investors purchase the shares, beneficial shareholder cards are submitted to TA. On the next record date, JASDEC reports holding list of balances of shareholders to TA and TA registers them to the list of beneficial shareholders. As from Jan (after dematerialization) Name, address etc, of the shareholders are firstly registered to the Shareholder s Information System in JASDEC after purchase of the securities. Then, on the record date, AMI sends the notice of all shareholders to JASDEC and JASDEC input additional information to it. The data completed in JASDEC will be transferred to the issuer (via TA) and it is registered to the list of shareholders. Nayose (Registration Name Consolidation) over the holdings possessed via multiple AMIs), which has been done by TA, will be administrated by Shareholder s Information System in JASDEC. 5

10 3. Foreign Indirect Account Management Institution( FIAMI ) (1) What is FIAMI? FIAMI is official status approved by JASDEC as the qualified financial institution of foreign country which can handle the book-entry securities eligible in JASDEC on behalf of its clients. There are two separate FIAMI statuses for bonds and equity. In order to acquire the status, applicants are requested to file documents specified by JASDEC and will be charged JPY315, 000- (inc. consumption tax) when it is approved. (2) Who is obligated to obtain FIAMI? Clients are obliged to obtain FIAMI status when: underlying Japanese clients require holdings to be eligible for registration name consolidation (i.e. Nayose) with positions held via other Japanese brokers and /or FIAMIs underlying clients wish to seek protection under Japanese law(*) for collateral arrangements on the books of BTMU clients underlying clients include those who wish to have record of transfer/holdings on the Transfer Account Book for the book-entry transfer system such as Japanese Designated Financial Institutions underlying clients request registration name of its accounts to be reported to the relevant agents in his/her single name(without global custodian s name referred) underlying clients are Japan resident individuals who receive dividends payments thus need to inform shareholders information to JASDEC* *BTMU is currently analyzing the operational impact of the change in withholding tax on dividends arising from tax reform package for fiscal year Under one of the possible scenarios being analyzed, tax procedures concerning dividends from listed shares that are received by Japanese individuals may change drastically and as a consequence it is likely to be mandatory to obtain the status of FIAMI in case of acting as a foreign intermediary to Japanese individuals for listed shares. (3) FIAMI status holders can take part in Nayose (Registration Name Consolidation) process 1 What is Nayose process? After dematerialization, information of shareholders will be administered in Shareholder s Information System in JASDEC. For the Japan resident shareholders, the following ways of handling registration of shareholders in JASDEC are possible via Nayose application. In case Japan resident shareholders request their positions of same issues held via multiple custodians (AMIs) to be aggregated and identified as that of a single shareholder, such handling process is possible though Nayose application. In case Japan resident shareholder via FIAMI requests BTMU not to act as a proxy 6

11 for his account as he wishes to receive entitlements directly from issuers/jasdec instead of receiving them routing proxies, such arrangement is possible through Nayose application. Notice: Even if the shareholders request Nayose, BTMU will not know whether Nayose is effectively achieved in JASDEC over the positions via multiple custodians since JASDEC will not revert to BTMU for such inquiry to confirm Nayose to have been successfully achieved or not. 2 For what type of investors is Nayose process applicable? For non-japan resident investor: Nayose cannot be applied since non Japan resident investors holdings will not be aggregated over the multiple custodians. After dematerialization, JASDEC will recognize foreign investors by its account name. However, even if the investor holds same account name over multiple custodians. JASDEC will not recognize him/her as a single investor. JASDEC will recognize him/her as difference investors, as long as the investor uses multiple custodians. For Japan resident investors: Nayose can be applied for by submitting required information. 7

12 3 Graphic example of processing Nayose applications - Example: Reporting Shareholders Information for SONY shares- Non-resident investors holdings will not be aggregated over the positions of the separate subcustodians. <Under New System> (Dematerialized System) Issuer Register of shareholders Notice of all shareholders JASDEC Shareholders Information for SONY X via AAA X via BTMU Y As the result of Nayose process in JASDEC, Shareholders Information of for SONY in JASDEC will show: *Investor X (proxy AAA) : 50 shs *Investor X (proxy BTMU) : 30 shs *Investor Y : 150 shs => Nayose process achieved over the positions of Y via AMI BTMU and AMI BBB AMI AAA BTMU (AMI) AMI BBB FIAMI FIAMI Request Nayose Request Nayose Non-Japan resident Investor X: SONY 50 shs via AAA SONY 30 shs via BTMU Japan investor Y: SONY 50 shs via BTMU SONY 100shs via BBB Example : reporting Shareholders Information for SONY shares 1. Non-Japan resident investor X: Even if X requests Nayose process for two separate positions 50 shs via AMI AAA and 30 shs via AMI BTMU, two positions will be recognized in JASDEC as positions of the different shareholders. JASDEC cannot regard the positions via multiple custodians as the positions of single shareholder s even if shareholders information reported is the same. 2. Japan resident investor Y: If Y requests Nayose process for two separate positions 50 shs via BTMU and 100 shs via AMI BBB in order that two positions to be identified as the identical shareholders ownership, such a process is possible as long as shareholders information submitted via multiple AMIs are identical. 8

13 (4) Will BTMU act as standing proxy for all the shares? In case final beneficiary is non Japan resident shareholders, BTMU will act as standing proxy for their shares without any exception. In case final beneficiary is Japanese resident shareholder, there is an option to process otherwise, not to appoint BTMU as standing proxy. Shareholders and share type As from Jan (after dematerialization) When shareholder is Non-resident of Japan(*) BTMU will act as standing proxy for non-resident shareholders holding and process entitlements on behalf of them. The registration names of your accounts will be reported to JASDEC as the Shareholders Information and BTMU will be registered as proxy. There will be no shares in BTMU clients accounts which BTMU will not act as a proxy, as is currently done for street name shares. When shareholder is Japan resident Securities are now deposited in JASDEC BTMU will act as proxy for the holdings of resident shareholders, will process entitlements on behalf of them. The registration names of the accounts will be reported to JASDEC as Shareholders Information and BTMU will be reported as proxy. Securities are now in physical form In principle, BTMU deposits physical shares with JASDEC before dematerialization and will act as proxy for resident client s holdings, and will process entitlements. The registration names of the accounts will be reported to JASDEC as Shareholders Information. However, if the shareholder requests BTMU not to act as a proxy for specific account, such application is possible by requesting Nayose process (**) with JASDEC. (*) Handling shares of non-resident shareholders Since non Japan resident shareholders are requested to appoint standing proxy in Japan, the physical shares currently in street name will be deposited to JASDEC and BTMU will be appointed as proxy unless otherwise requested by BTMU clients. As for the shares held by non-residents, if the shares are held via multiple custodians (AMIs), the shares are recognized as the positions of the separate shareholders on the list of shareholders regardless of the registration name submitted by shareholders and entitlements will be processed via each custodian. (Nayose process, which is later explained, will not be applied to non-resident holdings) (**) Please refer to 3- (3) for explanation of Nayose process. As for the obligation and influences on our direct clients and shareholders when Nayose process applied, please refer to the Appendix 1. 9

14 4. Book-entry transfer system Readers should understand that description in this section is not final and is based on the draft ministerial ordnance to amend the Broadcasting Law, which the Japanese Ministry of Internal Affairs and Communications announced in August 2008 to invite public comments until September 19, New framework to allocate the ownerships of foreign ownership limit ( FOL ) (1) How to fix the entitled shares for foreign shareholders Current Administration by Physical shares: Although FOL shares could be deposited with JASDEC, Beneficial Shareholder Notification Service is not provided by JASDEC for FOL issues. In other words, even though foreign investors deposit the FOL issues with JASDEC they would not be entitled as shareholders. Re-registration of FOL shares: As most foreign investors request to be entitled as shareholder, it is market practice for sub custodians not to deposit FOL shares with JASDEC, but to hold them in physical form in order to submit these shares to the issuing companies (=to TAs)for direct registration along with shareholders information cards prior to the record date. In this way, as long as the limitation has not been exceeded, the name of foreign investors could be listed on the shareholders book so that shareholders rights could be secured. Shares rejected for registration (Between record dates ( R/D s)) If it has exceeded the limit and there is no room for registration before R/D, the registration of shares would be rejected by the issuing company (TA) and the shares would be held in physical form under street name by the sub-custodian. After January 2009 (after dematerialization) (The tentative plan to handle FOL issues) Positions on the previous record date( R/D ) Entitled position as of previous R/D will be grandfathered amount to receive rights on the next R/D in priority. Increased holding position from entitled position on the previous record date In case FOL is exceeded, entitlements will be allocated to the increased holding position from entitled position on the previous R/D on a pro rata basis. Odd lot shares: If odd lot shares are generated as a result of pro rata allocation, such shares will be rounded up or down to a board lot by lottery. Shareholders, who are entitled to only less than minimum board lot, will be entitled to the minimum board lot in priority in principle. Laws and regulations to administrate FOL limit Relevant laws and regulations are currently under discussion and the drafts of legislations have not been released yet. Report of the entitled shares on R/D In case the limit of FOL is exceeded as of R/D, the issuer reports the number of the (un)entitled registered shares after allocation. BTMU notify our clients by MT 568 with details of breakdown of the entitled and rejected shares. 10

15 (2) How to fix the entitlements at the start of dematerialization If foreign ownership exceeds the limit, allocation of entitlements as of the record date of March 2009 will be determined in two steps starting from the previous record date as of Sep. 30 th First, the Shareholders list will be refreshed by comparing the entitled balance as of Sep. 30 th 2008 and the holding balance as of the opening of Jan (Because it is not a record date, no entitlements will be distributed based on this list.) Then, on the record date, a shareholder s list will be drawn up by comparing the above list and holding balance on Mar. 31 st In both cases, for foreign owned positions, only the balance after allocation will be recorded on the shareholders list and thus becomes eligible for entitlement. (3) Upcoming Schedules (Details still under discussion) Sep.30 Oct.1 Deposit of FOL shares Final date deposit of physical shares permitted Dec.19 Jan (opening balance) Demat. Date Jan.5 FOL to be entitled compared with list on Jan.5th Mar.31 (a) BD 1 *BD= Base Date *Demat. =Dematerialization (b) BD2 New BD First RD under demat. Shareholders list refreshed taking lists on (a) and (b) into account. (4) Example of handling of shares exceeding FOL limit Accounts at sub-custodians A B C D E F G H Total Previous Record Date (i) Current Record Date (ii) Grandfathering amount (iii) (i.e. smaller number of (i) and (ii) Excess amount (iv) (i.e. (ii)-(iii)) Pro rata allocation of excess amount (v) Rounded to board lot / the rest allocated by lottery(vi) Final Allocation Sample case: Limit of foreign ownership is 200 shares and there are accounts, A to H. The number of entitled shares as of previous Record Date --- (i) The number of shares held as of current Record Date --- (ii) The maximum number of shares held as of current Record Date, which is not over the number of 11

16 shares registered as of previous Record Date = The smaller of (i) and (ii) --- (iii) (grandfathering amount) Excess amount as of current Record Date --- (iv) (calculated by (ii) minus (iii)) Since the total of excess amount as of current Record Date amounts to 110 and the total of grandfathering amount is 150, pro rata allocation takes place in order to divide entitlements of 50 shares (200 minus 150) to 110 shares ((iv) multiplied by 50/110). Odd lot portions are to be rounded up or down to board lots by lottery. In this case, account A, C, D, F, G and H are to participate in the lottery. In this example, as a result of allocation by lottery, A, F, G, and H obtain one share each. Final allocation is thus determined. (5) How to confirm the updated FOL ratio held by foreign investors Current After January 2009 (after dematerialization) The following procedures will be conducted on a daily basis: The issuers or TAs announce the updated ratio of foreign To JASDEC: AMIs report the aggregate number of book-entry shares ownership without any specific directly held by foreign investors per each issue. Issuing rules. BTMU regularly inquire to the issuers or TAs the current holding ratio possessed by the foreign investors and announces it to its clients. company reports the number of outstanding shares. From JASDEC: Based on the information from issuing company (or TA) and AMI, JASDEC will calculate and announce direct shareholding ratio by foreign investors for each FOL issue. 12

17 5. Special Account (1) What is Special Account*? Special account was made as a special treatment to protect shareholders who are not able to deposit shares by the end of Dec Shareholders rights (rights of ownership) of share certificates of listed companies held with BTMU that are not deposited to JASDEC by December 19 th, 2008 and also registered odd-lot shares** (=less than board lot shares) will be automatically transferred to a Special Account* opened and managed by an issuing company. Physical certificates become invalid therefore cannot be used as certificates to represent the ownership of the shares anymore. * Special Account (for recording rights of the shareholders) are scheduled to be opened at the transfer agent(s) ( TA ) that each issuer currently designates ** Odd lot shares: Less than one trading unit shares. Odd lot shares currently handled in JASDEC will be dematerialized in current shareholders account. As for the registered odd-lot shares now administrated in issuer s shareholders book outside JASDEC will be once transferred to Special Account. For your information, fractional shares will no longer exist under the dematerialized system. In order to eliminate fractional shares, some issuing companies will conduct a stock split. Odd lot shares derived from fractional shares by such stock split will also be transferred to the Special Account automatically. The others will repurchase the existing odd lot shares compulsorily. (2) How to transfer your securities back from Special Account In order for a shareholder (owner of the transferred shares) to transfer the securities recorded in Special Accounts back to the shareholders account opened in JASDEC that the shareholder designates, he/she needs to follow the stipulated procedures. Besides, until the procedure back to Special Account is completed, trading of the relevant shares will be subject to certain restrictions. It may possibly affect the services BTMU provides as a standing proxy, such as payment of dividends, proxy voting service etc., if shares remain left in Special Account and no measures are taken to transfer them back to the client s account with BTMU. 13

18 (3) Graphic image of Transition of physical securities to Special Account <Current System> Depository and Book-entry Transfer System Issuer TA A: Physical A Shr Holder A B and D : deposited in JASDEC Participant X B Shr holder B JASDEC Participant X B C:Physic C Shr holder C BTMU D BTMU D Shr holder D Issuer TA Physical certs to become invalid A Shr holder A <New System> JASDEC TA's Special Account AMI BTMU A C B D AMI X B Shr Holder B C Shr Holder C BTMU D Shr Holder D Necessity to transfer shares out from Special AC. Transfer out to be suspended for more than 1 month in Jan B and D can be transferred by shareholders immediately after 5th Jan Physical certs to become invalid TA = Transfer Agent Shr Holder = Shareholder A and C : Physical share certificate not deposited in JASDEC before dematerialization B and D : Share deposited in JASDEC prior to dematerialization (4) Frequently asked questions and answers Please refer to the Appendix 2 for the frequently asked questions and answers 6. Related Links: (1) Electronic Share Certificate System (Paperless Share System) FAQ (2) Outline of Stock Dematerialization explained by JASDEC (3) JASDEC FIAMI application procedures 14

19 7.Suspension period on or around 5 January 2009 During the 2008 year-end and New Year period, new listings of shares, mergers etc., are scheduled to be suspended for seven weeks. Sales of odd lot shares, capital increase by public offerings are also to be suspended for three weeks. As for the details, please refer to the below matrix. Last Business Day Date of Dematerialization Type of Corporate Actions New listing to the market Publc offerings (When it involves issuance of share certificates) Publc offerings (Payment date for purchase of shares) Rights issue Bonus issue Reverse stock split Stock split Merger Share exchange Share transfer Demerger Sale of odd-lot shares Round-up purchase for odd-lot shares Conversion of Convertible Bonds (with sale of derived odd lot shares) Reason of restrictions Restriction period for withdrawal/deposit of certificates Restriction period under the law Restriction period for withdrawal/deposit of certificates Restriction period for recording new rights Restriction period for determining shareholders under the new framework Restriction period under the law Suspension period for sale of odd-lot shares Suspension period for round-up purchase for oddlot shares Suspention period for execution of rights 11-Dec Dec Dec Dec-08 4-Jan-09 5-Jan Jan Jan Jan-09 5-Feb-09 Thu Mon Tue Sun Mon Mon Mon Mon Thu Restriction Restriction BTMU Deadline to accept orders from clients: - Sales of odd-lot: 8 Dec. - Round-up purchase: 17 Dec. Suspension Restriction Suspension Suspension BTMU Deadline to accept orders from clients: 18 Dec. Restriction Restriction Restriction 15

20 Appendix 1 : Impacts of Nayose applications Below chart is the comparative table of the two cases where standing proxy information is contained and is not contained in the Shareholder s Information. Whether the shareholders positions to be aggregated by JASDEC or not Names on the list of shareholder s list Assumed customers/types of holding of securities Requirements to final investors( Japanese residents) Influences on and Requirements to Global Custodians (Direct customers of BTMU) Obtaining FIAMI and its maintenance Services to Investors who request Nayose, aggregation of positions per investor standing proxy s name NOT to be listed in the Shareholder s Information The same shareholder s securities via multiple AMI WILL BE aggregated (Nayose conducted) Basically the name of individual or each company will be on the list of the shareholders (As JASDEC compares the Shareholder s Information reported from multiple AMIs, the information submitted via separate AMIs need to be identical.) Such as stocks received from owner company, pledged securities the account name and the security registration name are currently different Items to be notified to JASDEC are as follows. (1) If the shareholder is an individual - Full name in KANJI and KATAKANA - Postal code - Address in KANJI - Date of Birth in Western calendar (2) If the shareholder is a legal entity - Name of the entity in KANJI and KATAKANA - Postal code - Address in KANJI - Title of the representative in KANJI - Full name of the representative in KANJI and KATAKANA Global custodians who intermediate positions of Japanese residents applicable to Law Concerning Book-Entry Transfer of Corporate Bonds, etc. are subject to the Japanese laws and required to obtain the license of FIAMI. Needed (Submission of documents including registration fee of 315, 000 (inc. Consumption tax) is required.) Possible standing proxy s name to be listed in the Shareholder s Information The same shareholder s securities via multiple AMI WILL NOT BE aggregated (Nayose not conducted) Registration name designated by global custodians will be on the list of shareholders An investor who does not stick to name of security to be registered and opts for the omnibus account under the name of global custodian No change from current obligation Not needed. (As long as there are no other conditions where FIAMI status is required) Impossible. 16

21 standing proxy s name NOT to be listed in the Shareholder s Information standing proxy s name to be listed in the Shareholder s Information Influences on final investors names on the list of shareholders the final investor s name to be specified on the list of shareholders the name designated by global custodian to be on the list of shareholders notification concerning receive entitlements not via BTMU (As for receive entitlements via BTMU entitlements including dividends receipt of dividend payments, BTMU s account can be designated ) Exercise of entitlements BTMU will intermediate the process of entitlements (*) which involve the change of All entitlements and actions to be exercised via BTMU accounts transfer book. Voting cards A voting card issued in the name of final investor will be directly sent to the final The voting cards will be sent to BTMU. BTMU can execute the voting rights only by requests. investor (in Japan). Attendance to the General meeting Possible. For omnibus account, participating in the general meeting is not allowed as the voting card cannot be issued in the name of a specific investor. Submission of attribute The information must be submitted before No need to submit. information including individual information the deadline and the information needs to be identical even if it is submitted via multiple AMIs. The Handling of the Information on the List of Shareholders in case the Securities are held via Securities positions are aggregated and administered based on the Shareholder s Information declared. (Nayose to be conducted) Securities positions held by each AMI are administered as securities holdings of the other investors, and not aggregated. (Nayose not conducted) multiple AMIs. Influences on and Requirements to Global Custodians (Direct customers of BTMU) Global custodians who intermediate positions of Japanese residents applicable to Law Concerning Book-Entry Transfer of Corporate Bonds, etc. are subject to the Japanese laws and required to obtain the license of FIAMI. Obtaining FIAMI and its maintenance Needed (Submission of documents including registration fee of 315, 000 (inc. Not needed. (As long as there are no other conditions where FIAMI status is required) Consumption tax) is required.) Services to Investors who request Nayose, aggregation of positions per investor Possible Impossible. (*)Corporate Action events which require the alteration of the account transfer book, BTMU will intermediate such requests to JASDEC even if BTMU is not appointed as a proxy. For example, requests for odd lot shares, bonus issues are the applicable cases. BTMU cannot intermediate tender offer bids since it requires authorized attorney to act on behalf of the shareholders. 17

22 Appendix 2 : Frequently asked questions and answers of Special Account Q1 Q2 Q3 Question What will happen to the physical shares after the end of 2008? Who opens Special Account? How shareholders transfer the shares out from Special Account? Answer The rights of ownership of physical shares which are not deposited to JASDEC before the end of this year will be automatically recorded to the Special Accounts and physical shares cannot be used as the certificates to represent the ownership of the shares any more. It is the issuer who opens its Special Account with Special Account Management Institutions (generally transfer agent the issuer currently designates) for recording rights of the shareholders, to whom the issuer could not attribute the rights prior to dematerialization. In order for the shareholders to transfer the shares out from this Special Account, it takes some specific procedures and the shares cannot be directly transferred to the third parities. In case the collateral rights to be set, it cannot be easily executed either. Q4 Q5 How shareholders know whether their shares will be registered to Special Account? In case the shares are in street name, how the owner can claim the rights? As for the shareholders who have the physical shares, which will be dematerialized in January 2009, the issuers will send notice before the end of November to the registered address to ask the shareholders to deposit the shares with JASDEC. BTMU will also inform its clients to deposit physical shares by checking applicable clients who have listed shares in physical form. In case the shares are in street name and transferred to Special Account, the special documentation process to determine the rights of real shareholder will be required. Details such as its procedures and handling fees under Special Account have not been decided yet. 18

23 II. Upcoming Tax Reforms in Japan 1. Outline of upcoming Tax Reforms For resident investors, from January 2009 to December 2010 a standard withholding tax rate of 10% (inc. 3% local tax) will be imposed on dividend income up to JPY one million and 20% (inc. 5% local tax rate) on any higher amount. Currently the rate applicable to those resident investors is 10%. Meanwhile, BTMU is analyzing the detailed impacts arising from the enforcement of tax reform for 2008 by investigating the relevant administrative guidelines such as documentation requirements for such resident investors to enjoy tax relief, possible account structure and requirements for Foreign Intermediary Account Management Institution status. For nonresident investors, ongoing temporary preferential tax treatment for dividends from listed shares will expire and withholding tax rates on dividends will be back in force to 15% from the current 7% from April Please refer to the matrix on the bottom of this document for the further details. 19

24 2. Q&A on Tax reforms Q1 Q2 Question What impact will the tax reforms have on non-resident investors? Is the change on a record date basis or payment date basis? Answer The biggest change is that the preferential tax treatment for dividends, which has been implemented since 2003, will expire. For non-resident investors, from April 1 st, 2009, the statutory withholding tax rate on dividends from listed shares will return to 15% from the current 7%. The new tax framework for non-resident investors is scheduled to be effective on income where payment dates fall on or after 1 April Therefore it is most likely that you have to start getting ready for applying new tax rate for the dividends with record date January 2009 onward, although old tax rate still be applied to the dividend paid before 31 March Q3 Q4 Can t investors benefit from tax treaties? Do you mean the statutory rate is lower than the treaty rate now? Yes. Treaty rates can kick in in more cases than now. For example, UK or French investors can enjoy a reduced tax rate of 10% under the Japan-UK / France tax treaty, from April US or UK eligible pension funds can continue to enjoy tax exemption under the Japan-US / UK tax treaty. Most important point we d like to draw your urgent attention is that US corporations or financial institutions can enjoy reduced 10% tax rate if they fully meet requirement for limitation on benefits article (herein after referred to as LOB ). With regard to old-style tax treaties, in which applicable tax rate is 15%, the statutory tax rate of 15% will be imposed and no action is required. Yes. Therefore in many cases, the lower statutory rate of 7% applies, irrespective of the tax status of the account. Q5 What documents are required to enjoy tax exemption or reduction under tax treaties? Typically, application forms are generated by BTMU based on the account set-up and on behalf of clients. If the applicable tax treaty has a LOB, Certificate of Residence and other documents/information is essential. 20

25 Q6 Question So to benefit from tax treaties my accounts needs to reflect the correct investor tax profile? Answer Yes. The action required here is to re-confirm countries where the recipients are taxable as resident on the income, and the places where tax is to be paid. If there are any changes in the countries from the previously reported to BTMU, please inform us. In case there are plural tax rate (e.g. 10% and 15%) for your single account, please let us know immediately as further action (e.g. account restructuring) may required. Q7 Do you have a list of all tax treaties? Please refer to DTT list and necessary documents under revised DTT BTMU delivers. BTMU will send an updated list if a new DTT is added. Q8 Is there any impact on non-resident investors holding bonds? No. There is no change for interest payments since ongoing preferential tax treatment was introduced in 2003 as a part of incentive measures concerning stock markets in Japan. Q9 What impact will the tax reforms have on resident investors in Japan? In case final investors are corporations having permanent establishments in Japan, 15% income tax will be withheld from dividends from listed shares received on or after April 1 st, For resident individual investors, tax rate for dividend from listed shares received from January 2009 to December 2010 (transition period) will be as follows. Up to JPY 1 million per year A standard withholding tax rate of 10% (inc. 3% local tax) will be imposed on dividend income from listed shares of Over JPY 1 million per year Tax rate of 20% (inc.5% local tax) will be imposes on dividends. Currently the rate applicable to those resident individual investors is 10%. No tax declaration on this income is necessary. 21

26 Q10 Question How will the two-tier tax rates be assessed? Answer Transfer agents, which also act as withholding collector, will deduct 10% (inc.5% local tax) on dividends by default. However, in case dividend income exceeds JPY 1 million in a calendar year during the said transitional period (except for certain minor dividends in an amount of JPY10, 000 or less in a calendar year), tax declaration and additional tax payment will be necessary. For example, resident individual investors will be required to file a tax return on dividends received from listed shares from January 2009 until December 2009, at the time of declaration for that year (usually tax declaration is from January to February in the next year). When filing a tax declaration, it is a new requirement to attach Notice of payment for dividend from listed shares issued by transfer agents, etc, which certifies the amount of dividends for listed shares received and income tax withheld. Q11 How can a resident investor in Japan obtain notice of payment? The investor will need to be recognized by the transfer agent in his /her own name. In other words, shares need to be registered in the investors own name. Q12 Q13 How can registration in own name be achieved? Is it possible to open a single omnibus account under the name of, for example, Tokyo Residents and commingle all Tokyo resident client assets? The below two need to be met: 1. Intermediary financial institutions between BTMU and the final investors acquire FIAMI (Foreign Indirect Account Management Institution) status. 2. Accounts with BTMU are segregated and opened under the name of final investors in Japanese writing. No. Notices of payment for dividends from listed shares will be issued in the account registration name, (i.e. in the name of Tokyo Residents ) instead of in individual investors names, and in total dividend amount per line. Therefore, the said notice become useless for each investor s as a formal attachment for tax declaration form. Market participants are also exploring alternatives to have investors receive sufficient documents for declaration but it seems a hard nut to crack. 22

27 Q14 Question What disadvantages do Japanese individual investors have if they cannot receive Notices of payment for dividends from listed shares? Answer Without receiving Notices of payment for dividends from listed shares, they cannot attach this required document at the time of tax return in the beginning of next year. Hence, such investors may be charged with violating the Income Tax Law, in a worst-case scenario. Q15 Please specify procedures with regard to tax return. The scope of taxable income embraces a wide variety of income such as income from business conducted in Japan, salaries and other sources as well as dividends in case aggregate taxation is chosen. Tax returns need to be filed in person supported by, if necessary, a certified public tax accountant as it becomes more and more complex. 23

28 Measures toward New Taxation on Dividends in FY2008 Tax Reform Package 3. Overview matrix of the applicable tax rate on dividends of listed shares the applicable tax rate on dividends from listed shares Having Final investors Individual /Corporate shareholders Permanent Establishments (PE) in Japan Until 2008/12/ /1/1 to 2009/3/ /4/1 to 2010/12/31 From 2011/1/1 aa) Japan Resident bb) Non-resident cc) Japan resident (Large shareholder) dd) Non-resident (Large shareholder) ee) Non-resident ff) Foreign corporate shareholder gg) Domestic corporate shareholder Individual shareholders Corporate shareholders Transitional period based on Preferential Tax Treatment National Tax : 15% National Tax: 7% +Local National Tax: 7% +Local Tax : 3% + Tax : 3% 2 in case dividends for a year is up to the ceiling of Yes Local Tax : 5% one million yen National Tax : 20% (Local tax :N/A) National Tax: 20% (Local tax :N/A) No National Tax: 7% (Local tax :N/A) National Tax: 15% (Local tax :N/A) No Yes National Tax: 7% (Local tax :N/A) National Tax: 15% (Local tax :N/A) the applicable tax rate on dividends of non-listed shares hh) All investors 1)National Tax: 20% (Local tax :N/A) The applicable tax rate in the above matrix is based on payment day. Only individual residents in Japan are subject to local tax (except large individual shareholders). If an investor has permanent establishment in Japan, country where he/she is taxable as resident on the income, and the place where he /she is to pay tax, is Japan. 24

29 Large shareholders are shareholders holding 5% or more of total amount of outstanding shares or total amount invested of domestic entities. With regard to shaded region (dd, ee, ff and hh in the above matrix ) Tax Treaty rate applied can supersede. 1 With regard to non-listed shares(hh in the above matrix), Tax Treaty rate can be applied only to non-residents and foreign corporate shareholders not having permanent establishments in Japan (dd, ee and ff in the above matrix). 2 In case the total amount of dividends form listed shares received for a calendar year by Japan residents (aa in the above matrix) or non-residents (bb in the above matrix ) who have permanent establishments in Japan for the transitional period of two years from January 1 st, 2009 until December 31 st, 2010, is over one million yen (except the case the total amount received for a year from the same issuing company is less than ten thousand yen), 20% tax rate (national tax: 15% + local tax: 5%) is imposed on dividends from listed shares over one million. Therefore, the amount of difference between withheld tax and separate self-assessed tax must be paid at the time of final tax return.(separate Self-Assessment Taxation method) In case investors have income other than dividends, the tax amount on the taxable income is calculated by aggregating all kinds of income for the year into a single taxable income and applying progressive tax rates on the taxable income and in addition tax credit for dividends can be applied. (Aggregate Taxation method) 25