Dear Fellow Members:

PIC or GNC?
(or The Effect of Regulatory Changes on our Club’s Legal Status and Operations)

Over a year has passed since new laws regulating private sector non-profit activities have come into force. Whereas ‘public interest’ and ‘mutual benefit’ associations and foundations were previously lumped together under a system rooted in the Civil Code and dating back to the Meiji Era, the new regulations draw a clear line between non-profits engaged primarily in activities benefiting the general public and those pursuing other interests. (‘Public interest’ status basically requires allocating 50% or more of an organization’s expenses to public benefit activities).

Pre-existing associations and foundations wishing to continue their activities must submit an application to re-register as either a public interest corporation (PIC) or general non-profit corporation (GNC) by November 30, 2013. Inaction means dissolution and forfeiture of assets.

The more exalted public image and preferential tax treatment of a PIC would seem to settle the issue of which status would be better for our Club. However, we would first have to address the questions of what constitutes public interest activities and whether our current activities would qualify as such.

In a broad sense one might argue for instance that our Club engages in cultural exchange and supports local government efforts to promote international friendship and foreign investment. However, the new guidelines seem to take a rather narrow view by cataloging specific activities, albeit with the caveat that unlisted ones may also qualify on a case-by-case basis. Ultimately, the decision seems to be left to the authorities, whereby the view from Kasumigaseki may differ somewhat from the local perspective.

Incidentally, whereas the Ministry of Education, Culture, Sports, Science and Technology (MEXT) currently acts as our Club’s oversight authority, when it comes to filing an application for renewal of status we have the option of choosing between the central government’s (Cabinet Office’s) Public Interest Corporation Commission (PICC) and the Hyogo Prefectural PICC.

What other factors should we take into consideration in deciding which status is right for us? There are many, but the more important ones seem to narrow down to the following (not necessarily in order of importance):

Internal Governance and Regulatory Oversight
As a PIC we would be subject to strict guidelines regarding our mission statement, activities and internal governance. We would be required to file a comprehensive annual report on finances and activities to the oversight authority and submit to inspections. Should it ever be determined that we are no longer in compliance, our status would change to GNC, however, only on condition our assets are first passed on to a PIC or paid to the government within one month. In most cases this would signify the end of the road.

With the exception of activities associated with the Public Benefit Spending Program (see below), GNC’s are much freer in defining their purpose and activities and in designing their internal management structures. There are no reporting requirements (apart from income tax returns) or any regulatory oversight (except for the period during which the Spending Program is being implemented).

Finances and Taxation
Both PIC’s and GNC’s must pay corporate income tax on income derived from designated ‘for-profit activities’ that typically compete with those of regular, tax-paying businesses. In the case of our Club, our food and beverage operations (whether involving members or 3rd parties) are already subject to income tax, although at a preferential rate. Under the new regulations the preferential treatment will cease, and the same corporate income tax rates as paid by regular businesses will apply to the for-profit operations of both PIC’s and GNC’s.

For GNC’s non-profit activities to continue to qualify for tax exemption certain conditions must be met, the most important being the inclusion of provisions in the Articles of Association forbidding income distribution and pledging upon dissolution to cede net assets to a PIC or the government. GNC’s not complying with the tax exemption requirements must pay tax on their entire income in the same way regular businesses do. However, it should be noted that forgoing tax-exempt status could offer tax benefits in some cases, although there could be a one-off tax event at the time of status change.

Consequently, when it comes to taxation of business income PIC’s and GNC’s are treated equally. On the other hand, while PIC’s will continue to enjoy receiving tax-free investment income, GNC’s will have to pay withholding tax at a rate of 20% on interest and dividends, even if the invested assets are associated with the non-profit side of its operations.
Nevertheless, with regard to taxation the difference between PIC’s and GNC’s doesn’t seem significant. By far the more seemingly ominous impact on the future finances of existing organizations seeking to transfer to GNC status is the requirement to institute a ‘Public Benefit Spending Program’ (Spending Program), whereby a GNC must pledge to spend the equivalent of its net assets (calculated at the time of transfer of status) on public interest activities. In principal there is no time limit on fulfilling this requirement, however, the GNC must report annually and submit to inspections by an oversight authority while the Spending Program is in progress. Moreover, the activities associated with the Program must be anchored in the Articles of Association until completion.

At first blush the Spending Program appears to be a form of confiscation. The official logic seems to be that an existing non-profit organization’s net assets were derived either from subscriber donations intended to support public benefit activities or as a result of its tax-exempt status. Consequently, in order for such an organization to transfer to a legal status that frees it from its public interest obligations, it must first relinquish its assets for the public good.

The amount to be allocated to the Spending Program is the sum of a GNC’s assets calculated at current prices less current and contingent liabilities.

It isn’t hard to imagine what this means for an organization with few or no liabilities and assets such as real estate that were purchased decades ago and appear on the books at a fraction of their current worth.

So on the surface it would appear that the Spending Program would present an almost insurmountable hurdle for an association endowed with unrealized wealth and relatively little cash and a limited income stream. Taken together with the seemingly impossible requirements and risks of PIC status, non-profits such as our Club appear to be caught between the devil and the deep blue sea.

However, as with all things one must delve into the details to find that proverbial devil and confront it. And in so doing we may yet find a way to avoid the end of the road for our Club, an outcome that the authors of the revised laws assure us was never their intention.

Although further study (and above all consultations with legal and tax experts familiar with the new regulations) is required, there seem to be a few bright spots that light the path forward.

With regard to the Spending Program, a major point of interest is a special provision in the new law permitting income-based valuation of real assets (land and buildings), provided they are intended for long-term use in the pursuit of non-profit interests. What this signifies for our Club is yet to be determined in detail; however, early contacts with a real estate appraiser familiar with the legalities point to the possibility of valuations significantly lower than market prices or property tax values. Should we choose to pursue GNC status, the Club should budget funds for an appraisal based on the special provision.

As for the other component of the Spending Program, namely the public benefit activities, there are several current Club programs and practices that may very well qualify. Again, were we to elect applying for GNC status, we should consult a qualified accountant to determine the monetary value of these programs and approach MEXT and/or Hyogo PICC for pre-consultations.

Conclusion
There is no standing still or turning back. The deadline for submitting an application may seem a long way off, but if one considers the workload of preparing the application, not to mention the process of deciding which status to pursue, the time has come to take the bull by the horns.

You may feel my article doesn’t answer the question posed by its title. Indeed, the decision to choose a new status for our Club rests with the members, and the General Committee must lead the way towards a consensus. Personally, I would recommend a status that best reflects who we are and is sustainable over time.

-Rick Brueggemann, Policy Development
General Committee

Friday, December 25th

Santa was out and about completing his appointed rounds for children all over the world.  The elves and Ms. Santa were preparing their dinner for Santa’s return and a gathering was taking place at the Kobe Club for their own Christmas dinner. And what a dinner it was…

   This column has always been filled with praises for Chef Kamiki, Jimmy and the rest of this staff.  This occasion is no exception as the chef and the staff continue with unsurpassed cuisine and service. It is a tribute to the excellent and high standards held by the staff of the Club. They are unfailing in the service they perform.

   Briefly, the menu consisted of….Crab Zuwai and cauliflower mouse, Flatfish, sea urchin, organic veggies, lily bulb and yam potatoes galette, with anago eel, truffle flavor, abalone risotto with mushroom, pan fried amadai, beef steak with a yuzu citrus flavor sauce plus winter vegetable…and a very impressive desert plate. To use an often overused word….this dinner was best described as Awesome!  Thank you, Chef!

   Dinner was further enhanced by the songs of the beautiful, Ms. Takako Yamada and her pianist Ms. Hiroko Narita.

It was a very Merry Christmas for all of us, and we wish the staff the very best in the coming year and look forward to further great dinners at the Club. Thank you!

- Lawrence Scott

 Saturday, December 12th

The Scandinavian Christmas Smörgåsbord held in mid-December was once again a great success. This lively event is a wonderful prelude to Christmas. The guests were treated to a variety of mouth-watering dishes prepared by Chef Kamiki. These included Duck Terrine, Ham with mustard, along with a variety of salads and hot vegetables to accompany. All followed by delicious deserts such as Chocolate Mousse and Fruit Salad.

After dinner, Dick Ström kindly led everyone in singing Christmas carols, including old favourites such as We Wish You a Merry Christmas and Jingle Bells. Guests from the Scandinavian community sang along with guests from the Japanese, Chinese, Taiwanese, Australian and New Zealand communities. What a great way to start the festive season!

A delightful evening was had by all, made even more enjoyable by the special atmosphere of the Kobe Club. Thanks very much to the Kobe Club and staff.

-Michelle Tan

Sunday, December 6th

One of the really great things about the Kobe Club is its annual X’mas party. Every year we know what to expect, but every year we are surprised that we still feel the magic. This year did not disappoint us.
This year again our eyes were treated to beautiful decorations and our tummies again were treated to some great food and beverages prepared and served lovingly as always by our dedicated food and beverage team. I must admit that this year like last, I was looking forward to the opportunity to eat the ginger bread house and reminding myself that although the world thinks that I am a middle aged husband, father and uncle, I am actually still a kid at heart. 

Talking of being a kid at heart, I was pleased that I am not alone when a X’mas Tree arrived on stage. You would be forgiven for wondering how our favorite Easter Bunny had miraculously transformed into a X’mas Tree, but then you would be missing the point that Mr. Nathan Bryan, our dynamic, bi-lingual MC knows that the magic that we all feel as adults at X’mas can only come when we remember what the world looks like through the eyes of a child. Nathan did it again, combining just enough authority to take command of the stage and the event with his unique brand of fun and generosity of spirit to make sure that smiles were permanently on everyone’s faces.

Kobe Club staff ensured that fun, games, arts and crafts were prepared to keep all the kids entertained and amused so that parents could have a little of their own time to eat, drink and enjoy conversation with family and other friends at the Club.

Oh, and did I mention our special guest that came bearing gifts for the kids and great photo opportunities for the parents? I am not sure who he was but he had a flowing white beard and wore red clothes. I was looking forward to asking this kind old gentleman his name, but he left the stage and the Club before I got a chance. I did however manage to find the bottom half of a business card that I think he dropped where his permanent address was written as being in the North Pole!!! The card was badly damaged and so I could not read his name or find a contact phone number or email address. Anyway, if anyone knows who this wonderful old man was, please tell me because the kids loved him! Hey, who am I kidding? I loved him, too!

Anyway, thanks to Okabe-san and her team and Nathan and his wife putting on another great event. I am already looking forward to seeing the Easter Bunny.

- Adam Lindemann

As Rainer asked me to write the article for this Spotlight publication I asked, "What topic?" His reply was simply “It’s up to you.” I thought about it for a few days and still had writer’s block. All too often, we lose sight of the obvious. Then I attended the Autumn Gourmet Dinner and Wine Tasting event on November 7th, Saturday evening. I watched the Kobe Club Staff flawlessly perform for the members and guests as if in an orchestra. They did not miss a note. And the topic became abundantly clear. It is about the staff silly. You need to introduce or re-introduce as the case may be, the staff to the members.

   The Events Conveners and I help with idea generation, scheduling and some of the upfront arrangements. It does take a little of our time, but this is all superficial in comparison to the planning and execution by our dedicated, professional staff led by Executive Chef Kamiki, Jimmy and Freddie.

   Chef Kamiki joined our Kobe Club family in 1996 after attending Abeno Cooking School and working at the Dojima Hotel in Osaka for 13 years. Chef was a very welcomed addition and quickly rose into Executive Chef’s role. Chef Kamiki owns an extremely large repertoire of cuisine, and member requested dishes pleasing even the most sophisticated palette. Chef Kamiki spends a considerable amount of time researching dishes. He and his staff are always prepared to offer only the very best for the Club members with specific dietary needs, religious needs or just a particular cooking style. His presentation is some of the most artistic you will find in Kobe.

  Freddie and his broad smile has been part of our Kobe Club family since 1992. He started as a part-time employee in the Bar just two days before the St. George’s Ball. (Does “baptism by fire” resonate with everyone?) He became annual contract staff in 1993, working in the Dining Room.  Freddie transferred to the bar in 1996 where he has worked for the past 13 years. His diverse skills allow him to be equally effective in both the Bar and the Dining Room. Freddie is a very innovative bartender. He is responsible for inventing many of the seasonal cocktails available in the Bar. If you have not tried them, you are really missing a unique opportunity.

   Jimmy joined our Kobe Club family in 1993 when he was a college freshman. He was the youngest staff at the time. He became an annual contract staff in 1999 working in the Bar. Jimmy transferred to the Dining Room in 2007 where he trains and guides all serving activities and arrangements. Like Freddie, Jimmy is at home in the Bar or Dining Room. Jimmy has impeccable tastes in wine and helps to select the best possible wine to compliment your menu choice. Jimmy considers himself very fortunate to have learned so much from them.

   Whether you are attending a special event, enjoying a quiet, relaxing dinner with a friend or loved one, or just having a casual drink in the Bar, the experienced, professional staff (family) are working behind the scenes to ensure your experience at the Kobe Club is the most enjoyable it can possibly be……. See you at the Club soon!  

- Mike Cantonwine, Bar &Restaurant Convener