Notice regarding Receipt of Correction Notice Based on Transfer Pricing Taxation

Nippon Paint Holdings Co., Ltd. (hereinafter “NPHD”; Head office: Chuo-ku, Tokyo; Chairman, President and CEO: Masaaki Tanaka) and Nippon Paint Automotive Coatings Co., Ltd. (hereinafter “NPAU”; Head office: Hirakata-City, Osaka; President, Representative Director of the Board: Shoichi Mure) have received a correction notice from the Osaka Regional Taxation Bureau on June 25, 2020 with respect to transactions* conducted between NPHD and NPAU and US subsidiaries for the period from the fiscal year ended March 31, 2014 to the fiscal year ended December 31, 2017. The corrected income according to this notice is 1.7 billion yen, and the additional tax payable, including corporate and local taxes, relating to the transfer pricing taxation is estimated to be approx. 0.7 billion yen.

Regarding taxation related to pricing of transactions between group companies, the so-called transfer pricing taxation, NPHD has compiled with the laws and regulations of Japan and other countries and ensured appropriate pricing by establishing rules for intra-group transactions by seeking advice from external experts. We at NPHD recognizes that the transactions with the US subsidiaries subject to correction were conducted under proper conditions in compliance with laws and regulations, and NPHD, NPAU, and the US subsidiaries have properly paid taxes in Japan and the U.S., respectively.

NPHD repeatedly explained its transfer pricing policy to the Osaka Regional Taxation Bureau. However, NPHD and the Osaka Regional Taxation Bureau had differences of opinion, which were difficult to reconcile, and therefore we considered various actions. Finally, we have decided to file a request for bilateral consultations between the Japanese and the U.S. tax authorities to eliminate the current situation of double taxation with priority placed on avoiding the recurrence of double taxation in the automotive coatings business in the U.S. upon ensuring the legal stability of tax payment. Based on such determination, NPHD will pay the additional tax payable according to the correction notice, and promptly file a request for bilateral consultations with the Japanese and the U.S. tax authorities.

We expect to avoid double taxation by agreement through the mutual agreement procedure. Accordingly, NPHD expects to report tax expenses, etc. of approx. 76 million yen as the sum of the difference resulting from the difference in corporate tax rates between Japan and the U.S. (difference between the additional tax payable in Japan and the tax refund in the U.S.) and the incidental tax amount in association with the additional tax payment in the Consolidated Financial Results for the Six Month Ended June 30, 2020.

* Transaction period: NPHD (from the fiscal year ended March 31, 2014 to the fiscal year ended March 31, 2015); NPAU (from the fiscal year ended March 31, 2016 to the fiscal year ended December 31, 2017)