Change in Tax Expense Calculation Associated with Application of the Consolidated Taxation System

「The Company and certain consolidated subsidiaries transitioned from the consolidated taxation system to the group tax sharing system from the first quarter of the current fiscal year. Accordingly, the accounting treatment and disclosures for corporate income taxes, local corporate taxes and tax-effect accounting follow Practical Response Report No. 42, “Accounting Treatment and Disclosure for Applying the Group Tax Sharing System” (12 August 2021; hereinafter, “Practical Response Report No. 42”).」

「The Company and certain consolidated subsidiaries have applied the treatment prescribed in Paragraph 3 of Practical Response Report No. 39, “Accounting Treatment for Applying Tax-Effect Accounting in Connection with the Transition from the Consolidated Taxation System to the Group Tax Sharing System” (31 March 2020), to matters involving the transition to the group tax sharing system established under the “Act Partially Amending the Income Tax Act and Other Legislation” (Act No. 8 of 2020) and matters for which the single-entity taxation system was revised in connection with that transition. Accordingly, without applying Paragraph 44 of the “Guidance on the Application of Tax Effect Accounting” (Accounting Standards Application Guidance No. 28, 16 February 2018), deferred tax assets and deferred tax liabilities are calculated based on the provisions of the tax laws before the amendments.」

「The Company and certain consolidated subsidiaries have applied the treatment prescribed in Paragraph 3 of Practical Response Report No. 39, “Accounting Treatment for Applying Tax-Effect Accounting in Connection with the Transition from the Consolidated Taxation System to the Group Tax Sharing System” (31 March 2020), to matters involving the transition to the group tax sharing system established under the “Act Partially Amending the Income Tax Act and Other Legislation” (Act No. 8 of 2020) and matters for which the single-entity taxation system was revised in connection with that transition. Accordingly, without applying Paragraph 44 of the “Guidance on the Application of Tax Effect Accounting” (Accounting Standards Application Guidance No. 28, 16 February 2018), deferred tax assets and deferred tax liabilities are calculated based on the provisions of the tax laws before the amendments.」

「The consolidated taxation system has been applied from the current consolidated fiscal year.」

「Previously, tax expenses were calculated by reasonably estimating the effective tax rate, after applying tax-effect accounting, on pretax net income for the fiscal year containing the quarterly accounting period, and multiplying pretax quarterly net income by that effective tax rate. In connection with the adoption of the consolidated taxation system from the first quarter of the current fiscal year, the method was changed to the simplified method used in calculating tax expenses under the same approach as the annual financial statements, in order to calculate more reasonably and appropriately the tax expenses corresponding to taxable income for the year-to-date period. As the impact of this change in accounting policy on quarterly net income for the first nine months of the previous fiscal year was immaterial, the change was not applied retrospectively.」

「Previously, tax expenses were calculated by reasonably estimating the effective tax rate, after applying tax-effect accounting, on pretax net income for the fiscal year containing the quarterly accounting period, and multiplying pretax quarterly net income by that effective tax rate. In connection with the adoption of the consolidated taxation system from the first quarter of the current fiscal year, the method was changed to the simplified method used in calculating tax expenses under the same approach as the annual financial statements, in order to calculate more reasonably and appropriately the tax expenses corresponding to taxable income for the year-to-date period. As a result of the retroactive application, income taxes and other taxes for the first six months of the previous fiscal year increased by ¥1,519 million, while quarterly net income and net income attributable to owners of the parent decreased by the same amount.」

「Tax expenses had previously been calculated by reasonably estimating the effective tax rate after applying tax-effect accounting to profit before income taxes for the fiscal year containing the quarterly accounting period, and multiplying quarterly profit before income taxes by that effective tax rate. With the adoption of the consolidated taxation system from the first quarter of the current fiscal year, the Company changed to a simplified method of calculating tax expenses using the same method as for annual financial statements, in order to calculate more reasonably and appropriately the tax expenses corresponding to taxable income for the cumulative quarterly period. As a result of applying this change retrospectively, income taxes for the cumulative first quarter of the previous fiscal year increased by ¥2,032 million, while quarterly net income and quarterly net income attributable to owners of the parent decreased by the same amount.」