04/20/2022

Our View on Supreme Court Rulingon Metropolitan Area Condominium Inheritance Tax Taxation
Yesterday, the Supreme Court ruled in a case (the "Ruling") that challenged the legality of adecision by the Regional Taxation Bureau to revalue the inheritance tax assessed value ofcondominiums in the Tokyo metropolitan area using an appraisal (actual value) as "anotherreasonable method" instead of using the roadside land price valuation method prescribed by theNational Tax Agency Basic Instructions on Evaluation of Assets, and to impose additionaltaxation. We have received inquiries about the impact on our business as a result of this decision.
In our Real Estate Fund Business, we provide the real estate fractional ownership investment
products (the "Products") that can invest in real estate in prime locations in central Tokyo from10 million yen per unit by utilizing the trust function of FPG Trust, a consolidated subsidiary ofthe Company.
Our Products has been well received by many investors, namely wealthy individuals, due to its
merits not only limited to its primary purpose of asset management, but also an ability to beutilized as a gift or inheritance asset at the same time, as well as the integrated operation andmanagement that only a trust can provide, eliminating the need for complicated and timeconsuming work.
With regard to the Ruling, the issue was whether or not it was appropriate for the Regional
Taxation Bureau to apply the exception to the National Tax Agency Basic Instructions on
Evaluation of Assets 6, "The value of property for which valuation in accordance with theprovisions of this notice is deemed significantly inappropriate shall be valued in accordance withthe instructions of the Commissioner of the National Tax Agency," and in the case in this question,
the Supreme Court found the application of the exception claimed by the Regional Taxation
Bureau to be legitimate, judging that the use of the roadside land price valuation based on
individual circumstances such as the purchase of real estate with a large amount of borrowing"would cause an unacceptable imbalance between the taxpayer and other taxpayers and would
be contrary to the fairness of the tax burden". It is our understanding that the legality of thedisposition by the National Taxation Bureau was recognized in this peculiar case where excessive
measures were taken to reduce the amount of inheritance tax to zero.
As a preliminary step to the above conclusion, the Ruling states,” Since it is a matter of publicknowledge that the Valuation Notice stipulates the general method of valuation of inheritedproperty and that the taxation authorities uniformly conduct valuations in accordance with thismethod, it is not appropriate for the taxation authorities to determine the value of the inheritedproperty of a particular person only by a value that exceeds the value assessed by the method
stipulated in the Valuation Notice. Even if such value does not exceed the market value as an
objective exchange value, it should be illegal as a violation of the above principle of equality,
unless there is a reasonable reason," the court acknowledged that the conventional method ofvaluation by roadside land price is the principle.
In this regard, we believe that the conclusion of the Ruling will not have a significant impact on
our business to extent that customers utilize our Products within the scope of appropriate
purposes.