Accounting, taxation, and cash flow projection
As the trustworthy concierge or caretake for clients engaged in infrastructural business chiefly involving renewable energy, we have been engaged in project financing for over 700 cases in Japan and other countries.
As the trustworthy concierge or caretake for clients engaged in infrastructural business chiefly involving renewable energy, we have been engaged in project financing for over 700 cases in Japan and other countries.
Tokyo Kyodo Accounting Office involvement in project financing began in earnest in 2012 with the introduction of a feed-in tariff scheme for solar energy, etc. (system of purchasing renewable energy-derived power at fixed prices). Our strengths in structured finance accounting and taxation counseling and verification and structuring of accounting and taxation items in the cash flow model (business profit/loss plan) have been recognized by our clients. This has led to introduction to new projects in rapid succession. In recent years, we have been involved with the largest number of project financing cases as experts in accounting and taxation.
Project financing with its focus on the project is positioned between Structured finance that focuses on the cash flow and value of physical materials such as financial claims, real estate; and Corporate finance that focuses on the corporate organization that changes throughout the business activities, depending on management policy and the business environment. Due to the common practice of establishing new SPCs (special purpose companies) as project operator and inclusion of sleeping partnership, trust and investment limited partnership (LPS) as vehicle options, counseling in accounting and taxation in projects structuring has become one of our main services, alongside our structured finance practice.
Furthermore, M&A transactions such as buyouts, mergers and splits are a common practice chiefly in projects involving solar power and other renewable energy and concessions. For this reason, we also offer accounting and taxation involved in restructuring and corporate finance services such as financial and taxation due diligence and calculation of stock and business values.
Moreover, concessions in airports, etc., commonly make use of subsidiaries and affiliated companies. For this reason, business activities of the entire group may in many cases extend beyond the scope of the company which is the target of corporate financing. In the case of BTO (Build Transfer Operate) type of PFI project, where ownership of a newly built public facility, etc., is transferred to the national or local government, etc., the return on investment is recovered in installments. For this reason, it can be regarded as a type of structured finance targeting real estate and financial claims.
* The cash flow model is made up of the business profit/loss plan of the project created in an Excel file. It is essential in making project investment decisions, consultations on terms of loans with financial institutions, and management of actual results.
In project financing, there are a significant number of areas where field and business activities overlap each other as mentioned above and so a broad range of knowledge is required. In the case of M&A transactions, there is the possibility of failing to identify risks in the scheme, unless one has knowledge not only of taxation in restructuring but also knowledge in taxation of vehicles such as sleeping partnerships.
In projects involving overseas investors, risk analysis from the perspective of international taxation (Japanese earnings stripping rules, thin capitalization rule, withholding tax, etc.) is also necessary. Additionally, there have been cases of clients receiving proposals for schemes that have been created strictly on formalities in the application of taxation regulations and without regard to taxation risks such as determination of donation and rejection of such acts or calculations. For this reason, accounting and taxation counseling with attention to economic rationality and to the fundamental nature of tax regulations is necessary in order to prevent clients from becoming trapped in such schemes.
In view of these issues, Tokyo Kyodo Accounting Office is committed to having its members apply themselves to a number of practices without being restricted to accounting or taxation or boundaries between such practices. At the same time, our policy is to delve exhaustively into issues both in accounting and taxation, giving us great strength in delivering broad-ranging and highly specialized services through consolidation of communication channels and formation of a small team of experts.
■Power generation business
Solar power, land and offshore wind power, biomass, thermal energy, hydroelectricity, thermal power, etc.
■Concession projects
Airports, roads, water works, etc.
■PFI
Public and public service facilities such as educational and cultural facilities, water and sewage systems, etc., and broadcast satellites, etc.
■Others
Tourist spot redevelopment, bulk terminals, etc.
In project financing, lenders and equity investors focus solely on the cash flow that is generated from the project in providing funds, resulting in the creation of cash flow models (business profit/loss plans) both objectively and precisely vis-à-vis corporate financing. In addition, these are inclined to be created for broad application in order to withstand various stress analyses.
Alongside these issues, various tax matters must also be incorporated with great precision and broad applicability. However, even a project operator with extensive understanding of the full scope of project will find it difficult to apply accounting and taxation issues to the cash flow model, hence requiring the services of accounting and taxation specialists.
The accounting and taxation specialists hired for this work must not only assess accounting and taxation matters for the project and the scheme but also possess a capability for logical thinking that enables understanding of the calculation structure of its cash flow model and how to apply it appropriately. Our capability to respond to these deeds is one of our strengths.
■Accounting and taxation counseling in structured finance
■Financial and tax due diligence services chiefly at M&As transactions
■Stocks (equity shares) and business value calculations (chiefly at M&A transactions and continued value calculation)
■Verification of accounting and taxation aspects of the cash flow model (business profit/loss plan)
■Production of report on verification findings on accounting and taxation issues in the cash flow model (business profit/loss plan)
■Drafting of written opinions on accounting and taxation
■Others
Creation of cash flow models chiefly in the field of solar power and other renewable energy sources