Aoyama Sogo Accounting Firm

Innovation Speed Quality

Vol.12C h a i r m a n ’ s

6/ 30/ 2022

C o l u m n

The declining number of Certified
Public Tax Accountant candidates
A while ago, it was speculated that tax accountants were
one of the occupations that would be replaced by AI.
Although certified public accountants and tax accountants
perform highly specialized work within the field of finance,accounting, and bookkeeping, there is still a large portionof work which is routine and likely to be replaced bymachines.

That reason may or may not be related but the applicants
for public tax accountant certification have declined over
the years since its peak in 2005. (See Chart below) In thepast 10 years, the number of candidates younger than age
35 that have passed the tax accountant exam havedeclined by 60%. I feel that fewer young people areentering the field.
Based on my personal observation, if I were to be asked if
the industry is sustainable with the current workforce, myanswer would be “No”. As you are familiar, tax is linked
closely to the nation’s policies and elections, ultimately
affecting citizens’ lives. Recent issues like the consumption
tax increase and treatment of Covid relief payments are
just some of the systematic changes that are difficult tounderstand without the guidance of a professional.

Recently, cross-border business is getting more complex as
more Japanese companies expand overseas as well as our
specialty of foreign clients entering the Japanese market.
We are receiving substantially more inquiries fromcompanies with new business models and for transactions
that are not easily categorizable under current statutory
interpretations.
Although securing tax accountant candidates is difficult, I
doubt that this labor supply shortage is unique to ourindustry. We definitely need to make our profession more
popular so that the industry doesn’t slowly collapse.
However, recruiting interested candidates is proving
difficult as the pool of candidates is small to begin with.
(Kazuhiro Matsuzawa, Chairman)

Sources・Takashi Sakamoto (2020) “Which workers will AI replace? (2)”Recruit Work Institute “2020 Nation-wide survey of occupations.
Thinking about Japan’s workstyles” Vol. 3.
・Chart: Directory of Accounting Firms (Online publication ofaccounting firm and tax accountant news)

2021 (71st) Yearly comparison of total applications and successfulapplicants
Red = Applications (actual)
Purple = Successful applicants (actual)
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Aoyama Sogo Accounting Firm

Innovation Speed Quality

Vol.12P E

6/ 30/ 2022

F u n d s

A rise in Private Equity Funds

ASA Group’s main services are as follows. (Details here)

As mentioned in Vol. 10 of our newsletter, PE fund activity
has increased dramatically. Since 2016, the PE fundmarket has significantly grown both in terms of deal
volume and investment amount.
While many investments stalled during Covid, the market
continues to expand, and 2022 is on track to set records
for deal volume and investment amount. PE fund types
include venture capital, buy-outs, and fund-of-funds.
Additionally, LPS is often used for PE funds involving realestate and renewable energy structures as well. A wide
range of investment methods are being utilized more thanever before.
Companies are fortifying or newly establishing PE funddivisions, adding new players to a growing market. Our
firm is receiving more requests for services as well. The
number of inquiries received in 2021 were 3.5 times morethan in 2020. This year’s figures are double that of 2020,
as of May.

• One-stop PE Fund services including vehicle setup andongoing administration (accounting, tax, sealmanagement, cash management, etc.)• One-stop SPC administration of LBO structures used for
PE funds• Valuation of investment target• Tax and accounting support of investment target• GP administration support
We are also flexible to other client requests.

We hope our firm continues to contribute to the growth ofthe PE fund market. Please feel free to send us yourinquiries.
※ In September 2021, Aoyama Sogo Accounting Firm
became a supporting member of the Japan Private Equity
Association (https://jpea.group).
(Toshihiko Hatta, Executive Manager)

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

Innovation Speed Quality

Vol.12J a p a n

R e a l6/ 30/ 2022

E s t a t e

RE100 for the Real Estate Industry

Onsite PPAs have the following merits including:① Fixed electricity charge based on a long-term contract② Exemption from renewable energy tax③ No investments are needed by the consumer since theelectricity producer is the owner of the facilities④ At the end of the contract term, ownership rights tothe facility will be transferred free of cost. The
consumer will no longer have to pay the electricity
producer.
Major real estate industry companies like Tokyo Tatemono,
Mitsubishi Estate, Tokyo Land Corporation, and Hulic areusing onsite PPAs.

The term “RE100” is often heard these days.
So, what exactly is RE100? ― It stands for 100% renewableelectricity with the goal for companies to procure 100% of
their consumed electricity from renewable sources.
Participation in this international project is becoming one
vital criteria in making ESG investment decisions.
This project initially evolved from research of theRockefeller Brothers Fund, and officially began in 2014
under the international NGO “Climate Group” which has
headquarters in the U.K. Currently, Apple, General Motors,
Goldman Sachs, Google, Meta, Microsoft, and UBS are
among the largely U.S. and European companies that
constitute 372 members.

When electricity demand is large, “offsite PPA” is also anoption. which sets up an electricity generation facility off
the consumer’s property and subsequently sends
electricity through a power grid to the consumer site.
“Self-generated and delivered” which uses the facilities ofan electricity company is another option.
The advantages of onsite PPAs are particularly felt underrecent price hikes in fossil fuel, and ultimately higher
electricity charges. Additionally, the goal of RE100 is
another incentive that is getting more companies toconsider implementation.
(Shigeru Hirai, Client Relations Group)

In the Japanese real estate market, “onsite PPA (powerpurchase agreement)” is becoming a popular method toachieve RE100. The electricity producers are provided
with space within the consumer’s facilities, and setup,operate, and provide repairs and maintenance. Theconsumer will then purchase electricity generated there.

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

Innovation Speed Quality

Vol.12S t a r t u p sI n

6/ 30/ 2022

J a p a n

Foodtech ー Alternative meat andComprehensive nutrition foods
Almost every day now, we hear of existing businesses thatharness new technology to provide services. In finance,
it’s “Fintech” and in real estate it’s “Proptech”. In recentyears, “Foodtech” businesses are gaining attention.
Amidst the backdrop of SDGs and the need to reduce foodloss, a shift from mass production and mass consumption
to more sustainable models are being demanded. As aresult, many domestic and global foodtech startups arebeing born. Among them is NASDAQ-listed “BeyondMeat”, which develops alternative meat produced fromplant-based protein found in soybeans and peas. Fast food
giant McDonalds is jointly developing an alternative meatburger.
Also in the U.S., food-tech company “Impossible Foods”
provides alternative meat to Burger King and Walmart andis considered a unicorn with over 2 billion dollars inventure capital raised. In Japan as well, various foodtech
companies are developing and producing cultured meats
and circular foods like crickets.

Among these Japanese foodtech startups, I would like totalk about Base Food, Inc. which states its mission as“Innovating staple foods, Making health easy”. The
company develops and sells comprehensive nutrition foodproducts. Recently, you may have seen “BASE Bread” and“BASE Cookies” at convenience stores like Family Mart. As
the name suggests, they are just that, bread and cookies.
Allured by their slogan of comprehensive nutrition, I tried
the BASE Bread and found it to be quite good. There areplenty of flavors including plain, chocolate, maple, andcinnamon that keep consumers coming back for more.

The founder is an ex-DeNA employee that wondered
whether we could become healthy by just eating staple
foods and first began developing pasta. In February 2017,
the company’s first comprehensive nutrition meal, “BASEPasta” began selling to consumers, followed by otherproducts like BASE Bread.
Since the company began, fund-raising rounds include 1
million JPY received in October 2016 as support purchases
through crowdfunding platform Makuake before theirofficial launch of BASE Pasta. Subsequent funding includes
October 2017 VC of 100 million JPY and May 2019 VC andindividual investor funds of 400 million JPY.
In February of this year, the company raised 2 billion JPY ofwhich 1 billion JPY was through private placement to THE
FUND which is a 20 billion JPY closed fund consisting ofMizuho Capital, Mizuho Bank, and Signifiant Inc. thatassists startups. The remaining 1 billion JPY came throughloan agreements with MUFG Bank, Shoko Chukin Bank,
Resona Bank, and Sumitomo Mitsui Banking Corporation.
THE FUND takes a hands-on approach in assisting laterstage startups and may eventually take Base Food public.

With future developments expected from the company, it
will be interesting to see how the company evolves.
(Jun Yoshioka, COO, ASA Advisory)

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

Innovation Speed Quality

Vol.12J a p a n

Ta x

6/ 30/ 2022

U p d a t e

Corporate and Consumption tax
treatment under the Revenue
Recognition principle

The example below illustrates a construction contract thatconsists of a construction receivable due in over one year
and has a “significant financial component”. (※1)

Effective since April 1, 2021, companies requiring statutory
audit are subject to the “Accounting standard for revenuerecognition”.
After the inclusion of a performance obligation
requirement in recognizing revenue under accounting
standards, the corporate tax law has issued correspondingreforms and guidance on treatment. However, dependingon the transaction, the revenue recognized underaccounting standards and corporate tax calculation may beequal, however compensation recognized in the transfer of
the taxable asset may differ under consumption tax.

※1 When an accounts receivable has a significant
financial component and compensation to be recognizedvaries depending on payment period, the portion that
corresponds to the variable compensation will be deemed
to have an interest adjustment quality and thus recognized
as a “significant financial component”. For consumption
tax purposes, the compensation at the time of transfer of
the taxable asset will be subject to tax and thus no“significant financial component” is recognized.

(Satoshi Gondaira, Certified Public Tax Accountant)

Example) Based on contract terms, the construction company will be paid 10,000 JPY twoyears after completion/transfer of the constructed property. The assumption is that if paid
at the time of transfer, 8,977 JPY will be compensation recorded (assuming 5% interest
rate adjustment for compensation). Compensation amount excludes tax and subject to
10% consumption tax.
① Treatment for construction company at the time of completion/transfer
Accounting
Accounts receivable ＊1

9,977 / Sales/ Consumption tax payable

Corporate Tax
8,977
1,000

Same as Accounting

Consumption tax
Compensation paid on taxable sales

10,000Consumption tax on taxable sales

1,000＊1 11,000÷(1＋1.05)²=9,977② Treatment for construction company one year later
Accounting
Accounts receivable ＊2499 / Interest received499Corporate tax

Consumption tax

Same as Accounting

None

Corporate tax

Consumption tax

Same as AccountingNone＊2 9,977×0.05=499③ Treatment for construction company when receiving payment
Accounting
Accounts receivable
Cash524 / Interest received
11,000 / Accounts receivable524
11,000＊3 11,000-(9,977＋499)=524

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