Investor Presentaiton
TMK Structure - Some Key Features
What is a TMK?
A TMK is a special purpose corporate vehicle introduced to encourage securitisation of certain assets. A TMK can only acquire limited types of
assets (essentially, real estate related) and undertake limited activities.
Investors in a TMK will hold equity as shareholders, and will receive returns in the form of dividends before corporate tax provided the TMK
meets the tax qualifying requirements. Since the investor is the owner of the TMK, the investor has ultimate control over the management and
operation of the investment made through the TMK.
Why is a TMK tax efficient?
In principle, a TMK is subject to normal corporate tax rates of approximately 35% on its taxable profit. However, where the TMK meets the
conditions to be a "tax qualifying" TMK, it is allowed to take a deduction against taxable income in respect of any dividend distributions which it
makes to shareholders. Given this treatment, the TMK itself will typically only suffer very limited tax itself. This is the same for both rental
income and capital gains.
In essence therefore the burden of Japanese taxation on returns from investments the TMK makes is levied on the distributions to shareholders.
Given a shareholder directly holding TMK shares from offshore should only be subject to withholding tax on such distributions, the overall tax
burden can be considerably reduced relative to the normal 30-35% rate in Japan.
Some Key Limitations
In order to obtain a deduction for its dividends the TMK must meet a number of conditions. Although these conditions can typically be achieved
without undue burden, it does have to be noted that there are limitations on the actions and attributes of the TMK which must be observed to
preserve its beneficial tax status. The relevant conditions for "tax qualifying" status are set out in the following slides.
One such key condition is the requirement for the TMK to obtain bond financing - i.e. a debt free approach is not possible with a TMK structure.
Returning of cash from the TMK to shareholders can only be achieved through a dividend (which requires distributable earnings) or a
redemption of preferred equity (which requires a legal process to be completed, and also naturally requires outstanding preferred equity which
can be returned). Thus, there is typically less flexibility for returning of cash under a TMK structure relative to TK or Direct offshore ownership
structures.
KPMG
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Document Classification: KPMG Confidential
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