Ownership Structure
The Astro Group's interest in the properties in Japan is achieved via an investment structure ("Japanese Investments"), as follows:
The TK ('Tokumei Kumiai') Structure
Under Japanese commercial law a TK is not a legal entity but a contractual relationship or a series of contractual relationships between one or more investors and a TK operator.
In a TK arrangement, the investors provide capital to a business which is defined by the contractual agreement and is to be conducted by the TK operator, which carries on the TK business entirely in its own name and under its sole control in accordance with the terms of the TK agreement. The investors have no right to make any business decisions with respect to the TK business. Investors in a TK do not own any equity in the TK operator and have no voting rights in relation to a TK operator or the TK business, rather there is only a contractual relationship between a TK operator and the investors. The investors are entitled to a proportional share (based on their equity contribution to the TK) of the profits and losses of the TK business. Depending on the terms of the TK agreement, liability of the investors can be limited to the amount of their initial investment or the investors can be subject to additional capital calls.
The net effect of these contractual arrangements under Japanese tax law is that the investors are taxed in Japan on their share of TK income (by the TK operator withholding Japanese tax from TK distributions to the investors) even though the business is conducted and relevant assets are held in the name of the TK operator.
A TK operator reports the amount of profits to which the investors are entitled as a deduction in respect of its taxable income.
AJT's TK Investment
All of AJT's interests in properties are held through TK structures. The Responsible Entity has TK Agreements with JPT Co., Ltd., JPT Scarlett Co., Ltd., JPT Direct Co., Ltd., JPT Corporate Co., Ltd., and JPT August Co., Ltd. ("TK Operators") pursuant to which, in exchange for AJT's contribution of all of the equity in the TK, AJT is entitled to 100% of the investor capital account of each TK and 99% of the profits and losses of the TK business. The TK Operators are entitled to the remaining 1% of the profits and losses of the TK business. Each TK's defined business is to obtain profits from purchasing, holding and selling the properties held by the respective TK Operator in accordance with the provisions of the respective TK Agreement (each, a "TK Business").
The TK Operators have a TK Asset Management Agreement with Spring Investment Co., Ltd. ("the Japan Asset Manager"). The asset management services provided by the Japan Asset Manager to the TK Operators are to assist the TK Operators to conduct the TK Businesses.
AJT does not own any of the equity of the TK Operators and does not have any voting rights in relation to the TK Operators or the TK Businesses, rather AJT has a contractual claim against the TK Operators.
The TK Operators are Japanese limited liability companies established specifically for the purpose of operating the respective TK Businesses. In order for the TK Operators to be bankruptcy remote, their voting stock is held by Cayman Islands companies established specifically for that purpose as nominees for the Japan Asset Manager. The voting stock of the Cayman Islands companies is held by a Cayman Islands charitable trust except in the case of JPT August. The person performing the duties of representative partner for JPT August is a neutral certified public accountant who provided a non-petition letter regarding bankruptcy. There arrangments are designed to assist in achieving bankruptcy remoteness for the TK Operators.
Trust Bank(s) and Trust Beneficiary Interests
The TK Operators hold the beneficial interest in the properties in the TKs under a trust beneficiary certificate issued by a trust bank licensed in Japan which holds legal title to the properties. It is common practice in Japan for a TK operator to hold its investment in property through Trust Beneficiary Interests (TBIs). Certain transaction levies are substantially reduced or eliminated in the case of the acquisition of a Trust Beneficiary Interest rather than the acquisition of real property.
The TK Operator in the case where the TK Operator holds TBIs rather than direct legal interest, effectively has the same economic rights and obligations as if it were the legal owner of the property the subject of the TBI.
The Financial Instruments and Exchange Law ("FIEL") was introduced in Japan on 30 September 2007. Under the FIEL, the Japan Manager is required to have certain licenses for the purposes of conducting discretionary asset management business, providing advice on the value of securities or financial instruments, and trading/brokering of trade of securities with low liquidity such as trust beneficial interests over real estate and interests in TK investments. On 19 August 2008 the Kanto Local Finance Bureau granted the Japan Asset Manager the following licences: "Investment Management Business"; "Investment Advisory and Agency Business"; and "Second Type Financial Instruments and Exchange Business". The Japan Asset Manager is registered as a financial instruments firm which is fully compliant with FIEL in respect of its activities, and the TK Operators are also in compliance with the FIEL.