Aoyama Sogo Accounting Firm

～TheInnovation Speed Quality

latest in alternative investments～

C h a i r m a n ' sVol.33

2024.5.31

C o l u m n

Is there a PLC for an Accounting
Firm?
Several days ago, the electronics manufacturer Sharpannounced their exit from the LCD TV business. For
many years, Sharp stood for LCD, and LCD wassynonymous with Sharp. Manufactured in the
Kameyama Factory (Mie prefecture), the world-class
Kameyama LCD panel was admired as a cool-looking
gadget with high specifications.
Well-known is the fact that a product life cycle (PLC)
exists for a company’s products. The cycle includes thelaunch of the product/service, generation of sales, anddiscontinuation. While the LCD panel will continue to be
used not just for TVs but for PCs and smartphones,
Sharp’s management likely decided on their exit basedon future competition, profitability, and stability ofearnings. Since it symbolized Japan’s technology formany years, it is a bit sad to hear this news.
At Aoyama Sogo Accounting Firm (ASA), we provide
our clients with tax and accounting services; inparticular, servicing SPCs used as investment vehicles.
So long as our clients remain in business, we believe ourservices will continue to be needed. In that respect, Ibelieve there is no PLC.
For example, tax accountant services are protected
through a certification system in Japan. However,creating deliverables is getting easier, as SaaS models
with accounting capabilities mature and tax preparation
can be done through smartphones. Like in the case ofSharp, the profitability of product/services may befalling. The tax and accounting industry as a whole may
be on the decline as well. In the future, a foreign player
with no market ties can potentially take over the market
with a powerful platform. The metaphorical “black ship”
usually arrives when least expected.
In the past, many accounting firms competed bylowering fees to gain clients. With inflation andinsufficient workers, that model no longer works.
Instead of making journal entries like in the past, weplan to automate journal entries, and provide fast andaccurate deliverables.
The applications of AI are just beginning, butunquestionably here to stay. In the future we need tothink more as consultants to engage with our clientsand to lead them to possible solutions.

Although the term consulting may be misleading, thework of explaining deliverables is within the realm ofour work. We plan to focus even more on growing ourstaffs’ professionalism to lead our clients.

by Kazuhiro Matsuzawa, Chairman

Copyright(c)2024 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

～TheInnovation Speed Quality

latest in alternative investments～

R E I Ta n dVol.33

2024.5.31

F u n d sComparing Private REITS andPrivate Funds
As of March 2024, there are 58 J-REIT stocks holding
23 trillion yen in total assets. While Private REITs haveclimbed to 57 investment corporations with 6 trillion
total assets. Since the introduction of the REIT, themarket has steadily grown. In particular, Private REITs
have added 11 investment corporations since March2023, resulting in an increase of 1 trillion yen in assets.
The Private REIT is a product that was born after JREITs took a massive hit during the Lehman Brothers
fallout. The difference is that while the J-REIT isavailable to individual investors in a public market,
private REITs are only available to institutional investors
and companies. Private REIT shares are based on theproperty appraisal value and is unaffected by stock
market fluctuations. Since the product does notundergo such drastic price fluctuations, it is good forsteady long-term ownership.
The private REIT is similar to a private fund, since theproduct is only available for limited investors. However,the following are differences.
“No fixed term”
Private funds have a fixed term that end in liquidation
after a fixed period of management. Private REITs, like
J-REITs have no fixed term. This is one reason why thePrivate REIT may be suitable as a long-term investment.
“An open-ended fund”
Private funds often are closed-ended, meaning nocancellations are allowed during the term. Meanwhile,some Private REITs are open-ended, allowing earlycancellation, which results in higher liquidity and lower
ownership risk. However as previously mentioned,
because the potential investor pool is limited compared
to a J-REIT, it has lower liquidity.
To prevent mass cancellation at the same time, some
private REITs have a non-cancellation clause or set alimit on cancellation amount.
In this way, private REITs are stable since they areless affected by the market and have substantial
liquidity. However, from a management perspective,
since there are a limited number of investors, if a few
decide to move their investments into safer products, it
may stifle performance and management. Either way,with investors coming from industries other than realestate, the use of private REITs will likely grow.

by Itsuki Onodera, ASA REIT Partners K.K.

Reference:Survey data: Investment Trusts Association, Japan
Monthly change in assets of public real estate trusts
Monthly change in assets of private real estate trusts

Copyright(c)2024 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

～TheInnovation Speed Quality

latest in alternative investments～

J a p a nVol.33

2024.5.31

R E I TInternal and External Growth in aCorporate context
In REIT terms, there is internal growth and externalgrowth. I first heard these terms when REITs didn’t existin Japan. REITs were solely in the U.S.
Later, Japan would establish their first J-REIT bymodeling the external management style1 of Australia’s
REIT (LPT).
At the time, Japan’s investment trust was a securities
investment trust regulated under the “Act on
Investment Trusts and Investment Corporations”. Uponthe first REIT formed, the Act was renamed the“Investment Trust Act”, which included the real estate
investment trust (REIT). I speculate that perhaps they
included both types of trusts (securities investment
trust and J-REIT) within one law due to both being
externally managed.
Defining the terms• Internal growth: A growth strategy that increases
profitability by increasing property rents andoccupancy and lowering expenses.
• External growth: A growth strategy that increases
profitability by acquiring new properties and growing
the portfolio (total assets)
I was confused at the time as to why they were defined
separately. I found out that the terms “internal/externalgrowth” were originally corporate growth strategies.

1 Ownership and management of the investment asset are with

Under corporate growth strategies:• Internal growth: Utilizing a company’s internal
resources to grow profit (example: R&D, branding,new product development, cost reduction, etc.)• External growth: Obtaining external resources togrow profit (example: M&A, outsourcing, business
partnerships, joint ventures, etc.)

When examining U.S. REITs, they are internallymanaged “real estate investment trusts”, but they are infact like businesses that invest in real estate (no law
exists like the Japanese Investment Trust Act which
regulates special companies). The REIT must only satisfy
certain requirements to be treated as a pass-through. I
speculate that the U.S. REIT was first established byapplying the concepts of corporate growth strategies toreal estate investment.
Perhaps we should rethink internal and external
growth for REITs and real estate firms through the lensof corporate growth strategies. Maybe there is actuallymore to growth than just rent, occupancy rate,expenses, and property acquisition.

separate entities. “Internal management” is when one entity bothowns and manages.

by Shigeru Hirai, Business Management Group

Copyright(c)2024 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

～TheInnovation Speed Quality

latest in alternative investments～

Ta x

Vol.332024.5.31

U p d a t e

Limitations for foreign operators
without a permanent establishment
in Japan: Simplified consumption
tax system and Special 20% relief
measure【Background of Reform】
In general, foreign operators without a permanentestablishment in Japan are assumed not to have any
taxable purchases.
The problem was that if the simplified consumption tax
system is allowed for such foreign operators, thedeemed purchase ratio used by business type will bemuch greater than the actual taxable purchase amount.
Under the 2024 tax reform, the following change tookeffect.

② Unavailability of tax credit relief measure (20%special measure) for small operators
As of October 1, 2023, the invoice system (qualifiedinvoice retention method) began. Under this system,
previously tax-exempt businesses that become qualified
invoice issuers can apply purchase tax credits equal to
80% of taxable purchases and pay the remaining 20% as
consumption tax.
However, foreign operators without a permanentestablishment on the first day of the taxable period are
not eligible for the tax credit relief measure (20% specialmeasure) available for small operators.

【Applicable periods】
The rule above takes effect for taxable periods thatbegin on October 1, 2024, and after.
【Summary】

System【Details of Reform】① Unavailability of the simplified tax system
The general rule is that operators with taxable sales
less than 50 million yen in the taxable period can selecteither general taxation or simplified taxation to accountfor purchase tax credits.
However, foreign operators without a permanentestablishment in Japan on the first day of the taxable
period may not select simplified taxation. Instead,general taxation will apply.

Foreignoperators
without apermanent
establishment on the firstday of thetaxable
periodPrereform

Postreform

Simplified
taxation

Applicable

Nonapplicable

Purchase tax
credit reliefmeasure(20% specialmeasure) for
small
operators

Applicable

Nonapplicable※ Tax reform measures often become applicable on
April 1 of the following year after the tax reform
proposals are announced. However, please be awarethat this reform will be applicable from October 1, 2024.

by Harutomo Yamasaki, Knowledge Group

Copyright(c)2024 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

～TheInnovation Speed Quality

latest in alternative investments～

F r o mt h e

Vol.332024.5.31

E d i t o r

For many businesses and consultants, the topic of“when to change” becomes a focus. For example, in thecase of ramen shops and restaurants, when change
comes too fast, customers may voice dissatisfaction
saying, “it tastes different”. Too slow and they may say“the taste has gone bad”. When the change is timed
slightly off, the impression will dramatically change aswell. In business, when to change becomes a point offocus. In June, ASA Group will undergo a structuralchange, so we need to make sure our clients don’t think“the taste has gone bad”.
by Jun Murata, Corporate Officer

Copyright(c)2024 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.