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September Featured business affairs

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1. Accounting(Inappropriate accounting treatments in Toshiba)

Toshiba released the full version of the investigation report by the Independent Investigation Committee and held a press conference on 21st July. In respect of matters (1) through (4) below, the Committee investigated the appropriateness of the accounting treatments; where it is deemed inappropriate: (1)Accounting in relation to projects in which the percentage-of-completion method was used; (2)Accounting in relation to recording of operating expenses in the Visual Products Business; (3)Accounting in relation to the valuation of inventory in the Semiconductor Business, mainly discrete and system LSIs; and (4)Accounting in relation to parts transactions etc. in the PC Business

The Committee said it had found a total of 151.8bn yen of overstated operating profit over the last seven years from FY 2008 to the third quarter of FY 2014.Financial reports in the past fiscal years will be revised, and the annual securities report FY 2014 ended in March 2015 will be submitted by August 31.(Source: “Keiei Zaimu Magazine” No.3222)

2. Tax (Attention to taxation on business profits attributable to PE through notes exchanged concerning new article on business profits under Japan-UK tax convention.)

On July 22, the Government of Japan and the Government of the United Kingdom exchanged notes concerning Article 7 of the Convention between Japan and the United Kingdom of Great Britain and Northern Ireland.Through the exchange of the notes, the new Article 7 will be applicable with respect to business profits for any taxable year beginning on or after April 1, 2016 in Japan. Under thise new Article 7, in calculating the business profits attributable to a permanent establishment of a British enterprise, internal interests and internal royalties must be included into the internal dealings, which compose the taxable income of a permanent establishment.

Under municipal law in Japan, business profits attributable to a permanent establishment of a foreign enterprise must be calculated by recognizing almost all types of internal dealings between its head office and branches for any taxable year beginning on or after April 1, 2016, by applying arm’s length principle. On the other hand, under the article 7 of the tax conventions based on the former OECD model tax convention, such internal dealings as internal interests or internal royalties have been excluded from the income of a branch. Accordingly, except for the UK, whether internal interests or internal royalties must be included into the internal dealings depends on where its head office is located. -Japan branch which is operated by the head office in a country which has a tax convention with Japan: NOT recognize internal interests and internal royalties in correspondent with the current tax convention with each government. -Japan branch which is operated by the head office in a country which has no tax convention with Japan: recognize internal interests and internal royalties.

3. Labor Management(Change in Maximum Amounts of Continuous Employment Benefits.)

The Ministry of Health, Labor and Welfare conducts a “Monthly Labor Survey” for the purpose of explaining the changes in wages, working hours and employment. This survey serves not only as a guideline for policy decisions of the prefectural and city governments, but also as reference for revising the amounts of benefits for Employment and Workers’ Accident Compensation Insurance. The benefit amounts are revised annually on August 1st. This year, the maximum amounts of Continuous Employment Benefits for Elderly, Childcare Leave Benefits and Family Care Leave Benefits were revised based on the survey results indicating that the average regular salary in FY2014 increased by about 0.07% compared to the previous year. These changes may affect the benefit amounts paid to some employees. (“Announcement to recipients of Continuous Employment Benefits for Elderly, Childcare Leave Benefits and Family Care Leave Benefits” – Ministry of Health, Labor and Welfare brochure.)

4. This Week’s Words of Wisdom(Source: 100 words in the world)

‘Essential to be a professional’ A professional always keeps his or her mind into business even in a dream. Whose daily life directs to business: it is absolutely differ from an amateur.(Mitsuo Aida / a calligrapher)

What is a key to reach a professional level will be time spent for. Apart from a genius who is only shown up in 50 years such as ICHIRO, a baseball player in major league, anybody can become a professional by devoting most time to a certain area. As stated in the words of wisdom, a person who concentrates on business at any time is a professional, distinguished from a top-class amateur. This theory must not be limited to sports, music and arts. It must be the same for all business.

The referring page is Nagamine & Mishima JC Accounting K.K.

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