Rich Japanese Investors Shift Stock Before Tax IncreaseAnna Kitanaka and Toshiro Hasegawa
Wealthy investors in Japan are selling or transferring shares before the capital-gains tax doubles in two weeks, according to Mizuho Financial Group Inc., which has seen a surge in such transactions.
Shareholders have been selling stakes, offloading stock to brokerages and buying it back the next day, or moving shares to asset-management companies they control, said Masakazu Kito, head of wealth management at the securities unit of Japan’s third-biggest bank by market value. The tax rate increases to 20 percent from 10 percent on Jan. 1.
The Topix index surged 47 percent this year for the biggest gain among 24 developed markets tracked by Bloomberg, as stocks from Masayoshi Son’s SoftBank Corp. to Hiroshi Mikitani’s Rakuten Inc. more than doubled. Kito, who declined to identify any clients, said his team completed 200 orders since November from investors seeking the lower rate, with 100 more pending.
The number of orders “was five times more in November than October,” Kito said in an interview on Dec. 12. “The peak will be December. Many investors are doing a little maintenance on their shareholdings for tax-planning purposes.”
By transferring shares to personal asset-management firms or offloading them to brokerages before the end of 2013 and then repurchasing them, investors wanting to retain holdings can lock in the lower rate. Tax laws require someone else to own the shares overnight for a transaction to count as a sale, according to Kito.
Son, Japan’s second-richest man, used an off-exchange cross trade to sell 2.5 percent of the phone company for 231 billion yen ($2.2 billion) on Nov. 5, according to a filing with the Ministry of Finance. Son Estate K.K., owned by the billionaire according to SoftBank spokeswoman Hiroe Kotera, bought an identical number of shares at the same price, the filing showed.
SoftBank surged 184 percent this year. Son’s total holdings, including shares held via four companies that Kotera said he owns, remained unchanged at about 23 percent, the filing showed.
“I just transferred from myself to myself,” Son wrote in an e-mailed response to questions from Bloomberg News on Nov. 7. “Did not sell to outside at all,” he wrote. Son didn’t respond to a subsequent e-mail on Nov. 12 asking the reasons for this transfer. Kotera declined to comment on Dec. 16.
Rakuten’s shares jumped 123 percent in 2013. Mikitani announced plans earlier this year to sell part of his stake in the e-commerce company through Sumitomo Mitsui Trust Bank Ltd., according to a filing with the Finance Ministry on Feb. 27.
Mikitani, ranked as the third-wealthiest individual in Japan, hired the trust bank to sell 27.5 million shares, or 2.1 percent of outstanding stock, from Feb. 21 through Dec. 27, according to the filing. His wife, Haruko Mikitani, engaged Sumitomo Mitsui Trust to offload 8.5 million shares, or 0.6 percent, the filing showed. A separate filing in July showed all shares were sold.
Hiroshi Mikitani didn’t respond to e-mails from Bloomberg News asking for comment on Nov. 7 and Dec. 16. Haruko Mikitani wasn’t available to answer a call made by Bloomberg on Dec. 16. Rakuten doesn’t comment on individual shareholdings, spokesman Naoki Mizushima said by phone on Dec. 17.
“It’s said that in Japan, the richest 5 percent of investors own about 50 percent of shares held by individuals, so we see this as a business chance,” Kito said. “Many of them want to retain voting rights, so they use crosses or transfer to investment companies” they own, he said.
Son’s net worth has increased $7.1 billion to $16 billion in 2013, according to the Bloomberg Billionaires Index. Mikitani’s fortune climbed $3.9 billion to $8.5 billion so far this year, according to the Bloomberg wealth index.
Japan eliminated a withholding tax of 1.05 percent on the selling price of stocks at the end of 2002 and replaced it with a 20 percent levy on profits from sales. In 2003, the rate was lowered to 10 percent due to a slumping economy and stock market, with a plan to return it to 20 percent after five years, according to the Finance Ministry. It’s been extended every year since the deadline as the global financial crisis and 2011 earthquake and tsunami roiled Japan.
Individual investors have been net sellers of Japanese shares in all but one month this year, according to Tokyo Stock Exchange data. They sold 2 trillion yen more of the nation’s stocks than they bought in November, a record, the data show.
“The impact on investors from this tax increase will be very big,” Hidehito Ogaki, a manager at Yamada & Partners Certified Public Tax Accountants’ Co., said in an interview in Tokyo on Nov. 27. “We hardly ever see tax changes of this magnitude.”