Ichinoseki Solar Power Project Update

GPSC Options of business structure and implications Godo Kaisha (GK) Tokumei Kumiai (TK) Japanese effective tax rate ~ 35% Japanese taxation on dividend/ TK distribution Project Co. Dividend: 5% withholding tax at source Cash received from project CO. Cash received from holding company No Corporate income tax Holding Co. No Corporate income tax Thai Co. Total effective tax rate* • ~ 38% Implication ~ 35% • TK distribution is treated as taxable expense Both GK and TK structure have to pay effective tax rate at 35% • Less taxable income However, TK structure allows project company to treat TK distribution as taxable expense Project Co. TK distribution: 20.42% withholding tax at source No Corporate income tax Holding Co. • No Corporate income tax ~ - 20.42% TK investor Remark: *Effective tax rate are calculated from assumptions and factors which may differ in other 10 cases • • • • According to the Japanese tax treaty, TK distribution will be subjected to 20.42% withholding tax when transferring money to Hong Kong While dividend income, from GK structure, will be subjected to withholding tax at 5% due to the tax treaty between Japan and Hong Kong The money received from Japan to a holding company in Hong Kong, both GK and TK structure, is accounted as dividend income According to Hong Kong tax treaty, there is a tax exemption on dividend income, thus, both holding companies do not have to pay corporate tax income Given Thai co./TK investor is granted with IHQ privilege, Cash received from holding company is not subject to tax (IHQ is International Headquarters privilege granted by the Revenue department, Thailand) By assuming that all profit from project co. is distributed to TK investors, hence, no tax paid on effective rate in Japan; only 20.42% withholding tax is calculated as total effective tax rate As s result total effective tax rate to Thai Co. and TK investor are approx. 38% and 20.42%, respectively In this case, establishing a holding company could help minimize effective tax rate Knowledge Sharing

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