Entered Odawara Auto-Machine Mfg (TYO:7314)

Odawara is principally engaged in the manufacturing, development and sale of bus fare and ticket systems. The company has it’s roots in the 1950s and seems to have been involved with bus fare equipment since the 1970s. The company was listed in 2009. The company has less than 1500 share holders and a market cap of circa 14 million USD.

All reports are in Japanese. From what I can gather business is a bit slow. The Tokyo Summer Olympics in 2020 may give an upswing, as public transport will be overhauled and the company is well established in the Japanese metropolitan areas.

The company has current assets of 4.6 B¥, total liabilities of 1.2 B¥. Current assets includes 1.7 B¥ in cash. Market cap is 1.6 B¥.  The company is in other words trading at 50 % discount to the current assets. Price 507¥.



Double taxation of capital gains

It’s the time of the year to hand in tax reports for the previous year. That got me thinking about trading shares on foreign markets.

In many countries, including where I live, there is a capital gains tax. The capital gains tax is calculated as a portion of the return (purchase price minus sales price). Gains tax varies between countries, from 0 % to upwards of 40 %. Local laws can also make a difference between long term and short term ownership. Typically, there is some type of incentive for long term ownership.

It occurred to me that trading shares on some markets could perhaps make you liable for tax in a foreign state. That made me a bit uneasy. I have good knowledge of my local rules, but I am certainly no expert for every state in the world. The idea seemed not too far fetched, we pay plenty of foreign taxes when trading shares – withholding tax on dividends, stamp duty, transaction taxes and what not.  Incurring an unknown tax debt in a foreign land would obviously be bad. The trading returns could be vastly overstated. Also, correct tax deductions would not be applied for, making the total tax higher than needed (ie double taxation – you have to pay tax twice on one income).

It turned out this issue is dealt with in double taxation agreement between states. The lawmakers agree that double taxation is bad and prevents investment and free movement of people, goods and service. Just one thing, there are many agreements – a typical state can have 100 to 200 agreements with other states. And the agreements are written in complicated legal-speak. And it is one of these particular agreements that govern how stock trading is taxed in your particular situation.

Thankfully, most of the double taxation agreements are based on the OECD Model Tax Convention. Article 13 in the model agreement deals with capital gains taxation and paragraph 5 states:

Gains from the alienation of any property, other than that referred to in paragraphs 1, 2, 3 and 4, shall be taxable only in the Contracting State of which the alienator is a resident.

In other words, capital gains tax on shares is paid in the state you are a resident in. There are exceptions, for example for some real estate companies. Feel free to read more if interested. Article 10 deals with the taxation of dividends.

Note: Don’t take my ramblings as tax advice. Just had to get my findings on paper… what’s written above may not be applicable to your situation.


Entered C C Land Holdings Limited (HKG:1224)

C C Land is a real estate company based and listed in Hong Kong. The share is trading at P/B of 0.43 and P/NCAV 0.62. The company assets are mainly cash after they divested various holdings.

C C Land has a large market cap of 5.5 bn HK$. Large net-nets are said to perform worse than small-cap companies, however I still found this position good enough. This is mainly due to the company is trying to acquire the Leadenhall Building in London, one of the few skyscrapers in the city.  It seems there is a reasonable chance the asset discount will decrease with such a major and prolific change in business direction.

The company can fund almost the entire purchase with net-cash, but will also make a complementary rights issue. The transaction is not without risk, as they are paying a large premium to the buildings cost (it was completed in 2014).