Second Round of New Coronavirus Countermeasures Announced
Introduction
A second round of emergency novel coronavirus countermeasures was announced which includes as a main feature loans incurring no interest for small and medium-sized enterprises. It is recommended that enterprises which are struggling to cope with financing issues look into the program.
Special Loan Program for Coronavirus-Affected Businesses
The Japan Finance Corporation (JFC) will establish special loan categories for enterprises which have seen their businesses adversely affected by the novel coronavirus pandemic. Both corporations and sole proprietorships will be allowed to take advantage of the program.
Regardless of the business’s creditworthiness or the value of its collateral, the interest rate on the loans will be uniform, with an interest rate reduction of 0.9% for a period up to three years from the time a loan is provided. Eligible parties are those who meet any of the following criteria:
- Sales during the prior month decreased 5% or more compared to either the equivalent period of the previous year or the year before that;
- In cases where the business has been in operation more than 3 months and less than 13 months, sales for the prior month decreased by 5% or more compared to any of the following:
a) the average sales amount for the past three months (including the prior month);
b) the sales amount for December 2019; or,
c) the average sales amount for the months October-December 2019.
The interest rate will be lowered 0.9% from the basic interest rate for the first three years, bringing the rate to below 0.5%. Furthermore, the financing will be carried out without the need for collateral.
Please note that it will be applied retroactively if the criteria are fulfilled, in cases where borrowing is done through the “New Coronavirus-Related Management Consultation Desk”, etc., on or after January 29, 2020.
Special System of Interest Subsidies
Among small and medium-sized business operators who borrow through JFC’s “New Coronavirus Infection Special Loans”, on behalf of those who have been especially affected (e.g., freelancers and other sole proprietors) as well as business owners whose sales have fallen sharply, the Special System of Interest Subsidies is a financial support system through which interest subsidies are provided. Through this system, the national government bears the financial liability of all or part of the interest paid on the above-mentioned loans - meaning that the loans are essentially interest-free.
Eligible business operators are those who meet any of the following conditions:
- sole proprietorship (including freelancer): unconditional;
- small business (corporation): sales have decreased by 15% or more.;
- small or middle-sized enterprise (corporation other than those in 1. or 2.): sales have decreased by 20% or more..
Small businesses include enterprises with 20 employees or less in the following fields: manufacturing; construction; transportation or “other”, as well as enterprises with five employees or less in the following fields: wholesale; retail or service. The interest subsidies period is to be the first three years from when the loan is made.
Details such as subsidy application procedures and other specifics have yet to be totally clarified. Once they have been, they are to be posted on the website of the Japan Finance Corporation’s Small and Medium Enterprise Unit (SME Unit), and elsewhere.
Financing System for New Coronavirus Countermeasures: First Round
Introduction
Due to the new coronavirus pandemic, numerous enterprises - especially Japanese inns, hotels, restaurants and food-service businesses - have experienced problems with financing. In these kinds of situations, it is necessary to have additional cash on hand. We will next examine the main financing systems for dealing with the novel coronavirus.
Special Loans in Response to Drastic Changes in Hygienic Environments due to New Coronavirus Infections (Japan Finance Corporation, JFC)
This is a program limited to the hotel/Japanese inn industry, restaurants and coffee shops. Loans are possible up to 10 million yen (30 million yen for hotels/Japanese inns) if both of the following conditions are met:
- Sales for the prior month decreased by 10% or more compared with the equivalent period of the previous year or the year before that, and a decrease in sales is expected going forward; and
- Recovery and development in the industry are expected over the medium to long term.
The basic interest rate is 1.91%, though it varies according to the loan period and whether or not there is collateral. Even if the company has already borrowed money from JFC, it is possible to obtain loans, up to the above-mentioned limits, through a separate framework.
Funding in Response to Changes in the Business Environment(JFC)
Loans for funding responses to changes in business environments are available for businesses other than hotels/inns, restaurants or coffee shops. These loans are aimed at businesses whose performance has worsened temporarily because of drop-offs in sales, etc. due to external factors such as changes in their social or business environment. Originally a requirement was that sales for the prior three months had decreased 5% or more compared to the equivalent period of the previous year or the year before that. This time, however, it will become possible to apply for such funding even if sales for the last three months haven’t decreased by the 5% or more figure. This is due to an easing of restrictions. The credit line is up to 720 million yen, with the basic interest rate being 1.11% or 1.91% - though these aspects also will fluctuate according to the loan period and the presence/absence of collateral.
Number 4 & Number 5 Safety Net Guarantees (Credit Guarantee Corporations)
Number 4 & Number 5 safety net guarantees are part of a financial support system for small and medium-sized businesses which face problems concerning operational stability. These are in a separate framework (of up to 280 million yen) from general guarantees.
Number 4 safety net guarantees come into effect if a company’s sales decrease by 20% or more compared to the same month of the previous year; they guarantee 100% of debt obligations (up to 280 million yen) in a separate framework from general guarantees.
As for Number 5 safety net guarantees, these come into effect if a company’s sales decrease by 5% or more compared to the same month of the previous year; they guarantee 80% of debt obligations (up to 280 million yen, in the same framework as Number 4). These are intended for 40 types of businesses such as hotels and restaurants and other food-service businesses.
In addition, there are cases covering interest or guarantee charges, in which municipalities help support companies with special loans in response to the spread of the new coronavirus.
As an example, in the case of Minato Ward, Tokyo, it is possible to obtain a special loan of up to 5 million yen. Though the amount is small, provided certain requirements are met, there are no interest nor guarantee charges incurred (Minato Ward covers the entire amount of those expenses).
Tax Savings through Trunk Rooms Depreciation Denied
Introduction
Arealink Co., Ltd. is a company in the real estate management service business, listed on TSE Mothers (“market of the high-growth and emerging stocks”). Now it seems that a case has been brought up by the tax authorities concerning container-type trunk rooms the company sells.
Tax Savings through Container-Type Trunk Rooms
Arealink Co., Ltd. operates trunk room businesses by selling containers to customers and then renting them back. The company announced a “revision of our forecast of financial results due to recording an extraordinary loss”, dated February 13 (2020).
According to the revision, though the containers sold to customers had been treated as “containers” included in the “appliances and fixtures” category for tax purposes, and thus basically depreciated in line with the useful service life for “containers”, some cases had occurred where such tax treatment was denied by tax authorities.
For the depreciation of containers in the “appliances and fixtures” category, the legal useful life for large containers is established at seven years, those made of metal have legal useful lives of three years, and others are set at two years. They have, therefore, become popular with some people as tax-saving products that allow them to recognize large amounts of depreciation expenses in short periods of time.
The Tax Authorities’ View
Generally speaking about containers, most people probably consider them boxes for carrying goods which are transported via ships or trains. However, the Ministry of Land, Infrastructure, Transport and Tourism has been issuing alerts to the effect that even among containers, those which are used continuously, and which cannot be promptly moved at will require applications for construction certificates as ‘buildings’.
Regarding this, in the first half of 2019, cases had appeared in which corrections were issued by tax authorities to the effect that containers for which applications for construction certificates were made based on construction standards law were not “appliances and fixtures”, but rather “buildings”. Therefore, the useful lifespan to be applied for the depreciation on such containers was to be that used for buildings. Since then, similar corrections have resulted in several cases of amended returns.
Because of this, the switch of legal useful life from the “appliances and fixtures” designation, with a minimum of two years and a maximum of seven years, to being designated “buildings” (approximately 20 years of life) results in much longer useful service lives. So the amounts of depreciation expense which can be booked change significantly.
From the standpoint of customers who purchased containers under the assumption that they could be depreciated based on the “appliances and fixtures” designation, a significant characteristic of the products has been lost. Thus, according to the company’s announcement, their forecast of lower demand for the containers resulted in the extraordinary loss allocation of approximately five billion yen as a “provision for repurchase losses”.
Determination as to Whether a Building or Not Depends on If It’s Fixed to the Ground.
Regarding a ‘building’ under the Real Property Registration Act, "It must be a structure with a roof and surrounding walls, or something similar to these, and be a well-established structure on the land that can be used for its intended purpose."
It seems that some local governments decide whether or not buildings are subject to property tax based on whether they are fixed to the land or not, the degree to which the outside air is blocked, and whether or not they are versatile.
The service life does not depend only on whether or not there is a construction certificate application. However, when determining the service life, it is recognized that when a container is fixed to the land, and thus requires a building certification application, it becomes quite understandable in such cases that even containers are to be depreciated as "buildings" instead of “appliances and fixtures”.
